https://www.blevinsfranks.com/succession-tax-in-spain-update/
How Spain’s succession tax reforms are protecting family inheritance
By Paul Montague, Partner, Blevins Franks
928 433 411 | canaryisles@blevinsfranks.com | www.blevinsfranks.com
Spanish succession tax reforms in many regions have made this tax less of a concern than it used to be a few years ago. The Canary Islands has virtually eliminated inheritance tax for close family.
There are many benefits to living in Spain, but, as with anywhere, there are both pros and cons. Many people find Spain’s succession regime to be complex and costly, and expatriates need to understand how Spanish succession tax and law works and affects their family.
The good news is that over recent years many Spanish regions have reformed their succession tax rates and allowances to protect spouses (including civil partners in some regions), children, grandchildren and parents from this tax on inheritance. Lifetime gifts may still be liable. Ensure you understand how the rules in the Canary Islands will affect each of your beneficiaries. Where necessary, take specialist, personalised advice on how you may be able to mitigate Spanish succession tax for your heirs.
Spanish succession and gift tax (SSGT) key facts:
- Spanish succession and gift tax applies to both inheritances and lifetime gifts.
- It is charged on each recipient, including spouses.
- It is due when:
- the beneficiary is resident in Spain, or
- the asset being gifted or inherited is a Spanish asset (Spanish property, bank account etc).
- Beneficiaries are divided into groups:
- Group I – children and other descendants under 21
- Group II – descendants over 21, parents and other ascendants, spouses
- Group III – siblings, cousins, aunts/uncles, nieces/nephews, in-laws, stepchildren
- Group IV – everyone else, including stepchildren and unmarried partners unless registered as a pareja de hecho.
- The tax rates and allowances are determined by the state each year, but the regions can make them more beneficial for local residents.
- UK nationals can be liable to both Spanish and UK inheritance tax, but a credit is given in Spain for tax paid in the UK to avoid double taxation.
State succession tax reductions and tax rates
Under the state rules, Groups I and II beneficiaries receive a personal reduction of €15,957 (increasing per year for those under 21), while Group III get €7, 993. These allowances are for inheritances only.
The main home can benefit from a 95% reduction up to €122,606 per inheritor. This is only where the recipient is a spouse, ascendant or descendant who retains the property for 10 years.
Tax rates range from 7.65% to 34%, but the liability is then subject to multipliers between 1 and 2.4 based on the recipient’s existing wealth and their relationship with the donor.
Canary Islands succession tax
Since September 2023, Group I, II and III beneficiaries benefit from a 99.9% reduction in succession tax in Lanzarote and the other Canary Isles. In effect, no tax will arise for spouses, children, grandchildren, parents, siblings, nieces, nephews etc.
The same 99.9% reduction applies for lifetimes gifts, but in this case only for Groups I and II.
Estate planning in Spain
The 2022-2023 succession tax reforms have significantly improved the inheritance tax situation for spouses and children in many popular regions of Spain. Nonetheless, changes such as these reinforce the need for specialist advice from experienced advisers, to not only take advantage of these changes but also other aspects of the regional Spanish tax system.
If you plan to leave assets to beneficiaries besides your spouse, children, grandchildren or parents, take advice early on. Calculate how much succession tax they’ll have to pay on their inheritance and establish if you can improve the situation for them. Be particularly careful if you have children from a previous relationship. If you leave assets to your current spouse, who later passes them back to your children, your children will be taxed as stepchildren.
You also need to be aware of how Spain’s succession law imposes ‘forced heirship’. In general terms, children are entitled to receive two thirds of an estate’s assets, so under Spanish law you cannot, for example, leave everything to your spouse. This applies to foreign nationals living in Spain by default.
You can however use the European Succession Regulation ‘Brussels IV’ to opt for the succession law of your country of nationality to apply on your death. You need to specifically state this in your will. This applies to all foreign nationals living in the EU, it is not restricted to EU citizens.
Every family is different. Take personalised advice, based on your situation and objectives, to help ensure your estate is divided as you wish and with as little tax and bureaucracy as possible. You can take steps now to make life easier for your family and heirs when you’re gone.
Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com.
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.
Blevins Franks Wealth Management Limited (BFWML) is authorised and regulated by the Malta Financial Services Authority, registered number C 92917. Authorised to conduct investment services under the Investment Services Act and authorised to carry out insurance intermediary activities under the Insurance Distribution Act. Where advice is provided outside of Malta via the Insurance Distribution Directive or the Markets in Financial Instruments Directive II, the applicable regulatory system differs in some respects from that of Malta. BFWML also provides taxation advice; its tax advisers are fully qualified tax specialists. Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services Authority for the administration of trusts, retirement schemes and companies. This promotion has been approved and issued by BFWML.
