Gift tax in Spain

When analyzing the issues around gift tax in Spain, it should be mentioned that gift tax and inheritance tax fall under the same category and are regulated by the Spanish Fiscal Code together; quite often these taxes are referred to as interrelated. For this reason, it is best to consider both cases in tandem.

Inheritance tax in Spain is imposed on any property inherited after its owner’s death. In this case, the presence or absence of the testament is of crucial importance.

Gift tax in Spain is imposed on the capital gains (property) obtained as a result of gift registration by a living owner.

It is possible to isolate three major instances in which inheritance and gift taxes in Spain are applied according to the Spanish Fiscal Code:

• Purchase of assets and property rights by succession in the case of an owner’s death. In this case, one should bear in mind that the tax must be paid before conducting any operations with the inherited property and before entering into the power of full disposal (for example, if a beneficiary who is an heir decides to sell the inherited property object, it would be impossible to do so without paying the inheritance tax in Spain;
• Obtaining assets and rights through gifts or by means of any other donation, when the owner is still alive;
• Obtaining profits from a life insurance policy, in which a contractor and a beneficiary are different persons;

The tax base levied on inheritance and gift tax in Spain is calculated as follows:

• In the case of an owner’s death, the present assets and liabilities at the time of death are assessed. The general sum after all deductions will reflect the tax base. Funeral expenses and any court proceedings related to the property also can be deducted from the general sum;
• Property and rights acquired as a result of gift procedures and other types of gratuitous cessions of rights during an owner’s lifetime are assessed based on their actual value; this assessment constitutes the tax base.
• In the case of income attainment through insurance, the income that a beneficiary will receive according to the insurance contract will be considered the tax base.

It is important to remember that inheritance and gift taxes in Spain are progressive taxes, and their interest rate depends on the following circumstances:

• The sum amount that is transferred by an owner to a beneficiary;
• The actual amount of wealth of the owner;
• The degree of kinship between the property’s owner and beneficiary;

Apart from these factors, the tax base can be reduced significantly depending on the level of kinship between a testator and a beneficiary. In this regard, four groups are distinguished among beneficiaries:

• Direct heirs under the age of 21 years. In this case, tax deduction constitutes €13651.99, plus €3413.75 multiplied by the number of years left until an heir reaches the age of 21 years.
• Direct heirs over 21 years old, spouses, heirs in the ascendant line - €13651.99 for each of them.
• For other relatives (brothers, sisters, uncles, aunts, nephews) the tax deduction is €6827.50.
• For distant relatives and strangers (including the testator’s partners) no deductions are applied.

In the table below, one can find the current interest rates for inheritance and gift tax in Spain (which may vary depending on the province):

Inheritance and gift tax in Spain for residents and non-residents

If a beneficiary is not a resident of Spain, the tax is only imposed on that property which is located in the territory of Spain. In the case of an heir-resident, the tax is imposed on all assets, regardless of their location.

In 2014, an important change to the applicable laws for those who enter into inheritance rights beginning on January 1, 2015, was introduced to the taxation scheme of inheritance and gift tax in Spain. The amendments were made in order to change the common characteristic of taxation discrimination for non-residents, who, in comparison to Spanish citizens, were required to pay larger deductions upon inheriting property. The main tenets of the new law can be summarized briefly in three points:

• A new option exists to choose to apply the taxation rules proper to the province where all inherited assets are concentrated; this amendment applies to E.U. residents.
• The same rules apply to property owners who are Spanish residents, and whose heirs are eligible to solve fiscal issues in accordance with the local taxation norms;
• In the case of a gift procedure, a beneficiary also can choose to abide by the taxation norms of the province where the assets are located.