If you acquire a property in Spain as we did, you need to know about inheritance tax. Unlike Canada, there are taxes to pay in Spain on inheritances and they can be quite hefty. The level of tax varies depending on the relationship to the deceased and the region in Spain and it is the beneficiary who is responsible for paying the taxes, not the estate of the deceased. All taxes must be paid before receiving the inheritance.
Here is a very basic outline of how inheritance tax works in Spain. I am far from an expert. This information is only to highlight the need to obtain further professional advice addressing your own personal circumstances.
Spanish inheritance tax rates, set by the national government are progressive. However, each autonomous region has the right to amend the national rules. Andalucia, where we own property, has recently introduced major changes making it much more tax-efficient than other parts of Spain.
Here are the four groups of beneficiaries:
- Group I: children (including adopted) under 21 years get an exemption allowance of €47,859.
- Group II: children (including adopted) older than 21, grandchildren, spouses and parents/grandparents (including adoptive) get an allowance of €15,957. Some regions including Andalucia may recognise unmarried partners registered as parejas de hecho.
- Group III: siblings, aunts and uncles, nieces and nephews, in-laws and their ascendants/descendants get an allowance of €7,993.
- Group IV: cousins, all other relatives, unmarried partners (unless the region allows it) and those unrelated get NO allowance.
- Those with disabilities are entitled to an allowance of either €47,859 or €50,253 depending on the extent of the disability.
In addition to these exemption, a variable reduction of up to €1 million was introduced in Andalusia in January 2018 for Group I and II beneficiaries (e.g. spouses, children, grandchildren, parents, etc.).
Since 11th April 2019, a new 99% tax relief has been introduced for Group I and II beneficiaries in Andalucía. This is in addition to the personal reductions, main home reduction, etc. This effectively means that when your spouse or children inherit from you (or when you inherit from your spouse or parent), only 1% of the tax bill needs to be paid.
As outlined in my recent blogpost, common law spouse must be registered as Pareja de Hecho to qualify for the spouse allowances. In all cases, it is best to get a notarized will as well.
Here is a helpful link to how Estate Tax work in Andalucia, Spain. https://www.volawyers.com/facts-about-inheritance-tax-in-andalusia/
We highly recommend to seek professional advice from a qualified tax lawyer. We have retained the help of Ignacio Diaz from CAP TAX & LEGAL S.L.P. in Marbella. Ignacio is a tax lawyer with 20 years experience who will be able to make sense of your tax planning needs. I will be happy to introduce you to him should you want me to.
For our Wills, we retained Reyes Gomez from Decotta Law, a reputable firm in Nerja. Reyes also did the legal work when we bought our house. We highly recommend Reyes for your legal needs.