Inheritance tax in Spain for British expats: a post-Brexit guide

Estimates put the number of British expats across the world at approximately 5.5 million people, nearly 1 in 10 of the entire UK population. One of the biggest expat communities has formed in Spain, with an expected 400 000 permanent residents living in the country. Indeed, Spain has been an enticing location for Brits who wish to leave the UK weather behind and enjoy some sunny days.

One of the vastly important areas that concern British expats is the Inheritance Tax in Spain. Especially after Brexit made an already complicated situation even more complex. Figuring out your obligations under the law, the deadlines you have to meet, and the applicable taxes is crucial in order to avoid incurring unnecessary tax payments.

Enlisting the help of a professional well versed in both jurisdictions could prove to be invaluable. After all, there is no universal solution. The cross-border expert will take into account the individual circumstances of the inheritance case and ensure that you get access to all available opportunities to mitigate the tax liabilities.

Succession law in Spain

The last decade saw some significant changes introduced to Spain’s laws governing succession and inheritance. In 2015, the Court of Justice of the European Union ruled that it finds the Spanish legislation regarding the Inheritance and Donations Tax to be discriminatory in its nature. Indeed, up to 2015, Spain provided autonomous tax benefits to its residents that were unavailable to non-residents. The CJUE (or TJUE in Spanish) 3/9/2014 ruling expanded the regional tax benefits and made them available to all residents from the EU or EEA.

However, Britain is no longer part of the EU, so can British expats enjoy the same tax relief opportunities? This particular issue was resolved with the No. 242/2018 Judgment by the Supreme Court. It established that all non-residents from third-party States (outside of Spain, the EU, and the EEA) are now entitled to the same tax regulations as the residents of Spain. This ruling finally removed all types of discrimination against residents of non-EU countries.

Applicable inheritance tax Laws

The Spanish laws regarding inheritance and taxes on death are much more complicated than the system implemented in the UK. For example, in the UK, no inheritance tax is owed if the value of the estate is under a certain threshold, which can be further increased if the home is passed on to children or grandchildren as a gift. In Spain, however, the inheritance tax is applied to those receiving the inheritance and depends on several factors such as the specific region and the familial connection to the testator.

Indeed, each of the 17 regions in Spain has its own tax regimes regarding the Inheritance and Donations Tax. Some regions have generous tax exemptions, such as 100% in Cantabria, followed by 99.9% in the Canary Islands. Madrid, Murcia, and Extremadura offer tax exemptions of 99%. Other regions – Andalucia, Catalonia, Valencia, and more – have set significant tax allowances within certain limits.

There are also kinship reductions. Spain recognizes four groups of familial bonds, and each has its own separate tax reductions:

  1. Children or adopted children under the age of 21 are allowed reductions ranging from 16 000 euros to 48 000.
  2. Children above the age of 21, spouses, couples registered as domestic partners, parents, grandparents, and grandchildren get a reduction of 16,000 euros.
  3. Brothers, sisters, nephews, uncles, aunts, and in-laws get an applicable deduction of just below 8,000 euros.
  4. Cousins, unrelated persons, unmarried couples or ones not properly registered as domestic partners receive no reduction.

After determining the regional or kinship tax cuts, a progressive tax rate is applied. It can start from 7.65% for the first 7,993.46 euros and grow up to 34% after a threshold of 795,555 euros is passed. According to Spanish law, the owed inheritance tax must be paid within six months from the date of death, but there is an option to extend it to a maximum of 1 year upon filing a request.

Required documents

Several specific documents must be provided as part of the inheritance process. First is the death certificate of the testator. If the person has died in a territory outside of Spain, the document will most likely need to be accompanied by a Hague Apostille. This is an official government-issued certificate added to documents so that they will be recognized as legitimate when presented in another country.

Then, you will need to present the Spanish NIE Number and the passports of all heirs. Finally, the testament or will must also be provided. When all necessary documents are gathered, they must be taken to a Notary so that an inheritance deed establishing all heirs and applicable assets can be signed.

Carrying out the entire inheritance process alone can be both time-consuming and nerve-wracking. It is highly recommended to turn to a specialized law firm for expatriate citizens to help you meet all requirements of Spain’s Inheritance and Donations Tax law while minimizing the tax consequences.

Image cc by Jernej Furman on Flickr.