Spanish inheritance tax is payable if:
- The deceased was resident in Spain, or
The assets being inherited on death are in Spain even though the deceased was not a resident in Spain.
Inheritance tax is paid by the recipient. The tax rates payable are based on:
- The family relationship of the recipient to the deceased
- The wealth of the recipient prior to the transfer
There are some important exemptions on the taxable base and reductions on the tax fee that are different for each region of Spain.
The general principle is that the closer the family relation from the inheritor to the deceased, the less inheritance tax is to be paid.
In the Valencia region there is an exemption of 100.000.-€ per inheritor, provided that they belong to the closest family to the deceased, husband, wife, children or parents. This is a reduction in the taxable base, meaning that if, as an example, the deceased had a house in Spain, valued 200.000.-€, and the beneficiaries are 2 children, they will not have to pay inheritance tax as they will receive an inheritance valued at 100.000.-€ each.
For uncles, cousins and nephews the exemption is just 8.000.-€ (in round figures).
For other relatives, or those not related at all, there are no exemptions.
It may be that the house is exempt from the Spanish inheritance tax if the deceased was a tax resident in Spain and the beneficiaries are either the spouse or children or even a relative over 65 years of age, under some conditions. In all these cases, the inheritor cannot sell the house for 5 years from the date of death to benefit from a reduction in the taxable base of 95%.
However, the law requires all inheritors to make the inheritance tax declaration within six months from the death. Even if there is no tax to pay, because the beneficiaries have benefitted from the above relationship exemptions.
The Valencian Community has its own tax scale. The tax rates is set from 7,65 % on the estate value, up to 34% when the estate value is more than 781.000.-€ (in round figures)
If, despite the reductions in the taxable base, there is a tax fee to pay, there is also a bonus of 95% or 50% of the tax fee depending on the family relationship with the deceased, closest family or not.
You can also gift a property to your inheritors while you are still living, perhaps reserving the right to inhabit the property for as long as you live, but remember that the recipient of the gift is also subject to the Spanish gift tax.