Succession Planning and Budgeting for Inheritance Tax in Spain - For Residents and Non-Residents

Global wealth management specialists share insights on Spanish inheritance tax, residency rules, and strategies to optimise expat succession planning

Inheritance planning is often an area overlooked by expats, who assume their estates will remain taxable according to UK law and can be divided between their beneficiaries however they like. In reality, astute planning can make a considerable difference both to your control over your estate when you pass away and the tax liabilities passed onto your family and beneficiaries.

Expats also need to consider their residency and domicile statuses. Tax residents and non-residents are not taxed the same way, and remaining a British domicile could mean being exposed to tax both in Spain and in the UK.

In this concise guide from the global wealth management specialists at Chase Buchanan, you’ll learn the basics of the Spanish inheritance tax system, how and where this could apply to your estate, and why advance planning is essential to accessing tax efficiencies.

An Introduction to Inheritance Tax in Spain for Expats

The Spanish system does have an inheritance tax, although this is referred to as the Impuesto de Sucesiones y Donaciones or ISD, which translates into a succession tax. While rates vary between municipalities, the tax is progressive and may be payable against a range of inherited assets, including cash and real estate.

One of the reasons inheritance planning can be complex in Spain is that the autonomous communities have the right to set their own rules, allowances and exemptions. This could mean the succession tax liability linked to your estate varies based on location alone.

Some regions, including the Canary Islands, Valencia, and the Balearic Islands, introduced reforms in 2023 that effectively removed succession tax liabilities for immediate relatives. These regions joined Andalucia, Madrid, and Murcia in offering these tax advantages.

In other areas, inheritance taxes are applied depending on the value inherited and the relationship between the deceased and the beneficiary.

Succession Tax Rates in Spain

Currently, the general rates begin at 7.65% for small inheritances up to €7,993, with an upper tax band of 34% against larger inheritances over €797,555. However, as we've intimated, that depends on how the beneficiary is related to the estate owner.

The Spanish tax system splits recipients into groups as follows:

• Group I includes children and descendants under the age of 21
• Group II applies to older descents over 21, parents and spouses
• Group II involves other relatives such as siblings, aunts, uncles, cousins, and stepchildren
• Group IV applies to all other beneficiaries, such as unmarried partners, outside of regions where they are not given the same automatic entitlements as spouses

Each inheritor receives personal allowances based on their familial ties. Minors can inherit assets up to €47,859 before succession tax becomes payable, dropping to €15,957 for Group II inheritors.

However, note that these general allowances can vary between the municipalities, which could mean an expat living in Spain needs to carefully evaluate the localised succession tax rules and exemptions.

Understanding Spanish Succession Tax for Non-residents

Succession tax becomes potentially more complicated for non-residents—this could include expats who own property in Spain or spend part of the year there but are treated as non-residents for tax purposes as their primary home or interests are in another country.

Previously, Spanish regulations meant that non-residents could potentially end up paying significantly more or less.

Now, the rules are equal, but non-resident estates are only subject to Spanish succession tax based on the value of assets within Spain itself. Beneficiaries may, though, be exposed to succession tax alongside municipal capital gains taxes on assets inherited, such as property, located in Spain.

Spanish residents who receive an inheritance are also subject to domestic succession taxes, even if the assets they inherit are based in an overseas jurisdiction.

However, our tax advisers can assist with claiming against double tax treaties, where applicable, to avoid paying inheritance tax twice on the same amounts or assets.

The Complexities of Expat Succession Planning for British Domiciles

Alongside the varied tax treatments we’ve explored, another challenge exists for domiciles. Your domiciliary status is different from your residency status and is typically the country where you were born—even if you have lived overseas for several years or hold dual citizenship.

Much will depend on your specific circumstances, but there are scenarios where expats leave their estate to family members without recognising that some or all of those inheritances could be subject to inheritance tax in the UK.

Expats who have lived in the UK at any point within 15 of the last 20 years or who have owned a permanent residence in Britain at any stage within the last three years of their lives are typically treated as UK domiciles, and all assets that form part of their estate are subject to inheritance tax charges.

Otherwise, the British tax office normally expects to collect inheritance tax against only the UK assets owned by expats, provided the estate owner has a permanent home in another country. Assets currently excluded from the scope of UK inheritance tax include foreign currency bank accounts and overseas pensions.

This is, of course, a general overview, and personalised advice is essential to ensure you are fully aware of the potential tax liabilities your beneficiaries will inherit to enable you to plan accordingly.

Forced Heirship Rules for Expat Estates in Spain

We've seen that Spanish succession planning can be involved, but an additional element to bear in mind is that if you are a Spanish tax resident, even in one of the regions with tax-friendly allowances and rules, the forced heirship regulations may apply.

These rules are more common in European countries and dictate the way your estate is split. They can determine the minimum or maximum proportion of your assets you are permitted to leave to certain beneficiaries or relatives.

As with succession tax rates, the laws included within the federal legislation also depend on the local municipalities. Succession rules in regions including Basque Country, Catalonia, and Galicia vary from those applied elsewhere.

The Importance of Specialist Spanish Succession Planning Advice for Expats

Inheritance planning is often tricky, and for expats, it is even more so because they need to factor in varied rules, regulations, allowances, exemptions, and potentially duplicate tax obligations that could impact their beneficiaries.

Accurate, personalised, and up-to-date advice is hugely important and can help expatriates make informed decisions about where they live, how they manage the ownership and locations of their assets, and how they factor in tax liabilities to support the long-term financial stability of their loved ones.

Read more about Chase Buchanan - Specialist Wealth Management Firm, Chase Buchanan, Encourages Expatriates to Review Their Finances for the Year Ahead

About Chase Buchanan Private Wealth Management

Chase Buchanan is a highly regulated wealth management company that specialises in providing global finance solutions for those with a global lifestyle. We are global financial advisers, supporting expatriates around the world from our regulated European headquarters, and local offices across Belgium, Canada, Canary Islands, Cyprus, France, Malta, Portugal, Spain, UK and the USA.

Chase Buchanan Ltd is authorised and regulated by the Cyprus Securities and Exchange Commission with CIF Licence 287/15.

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