If you own assets in Spain (Barcelona, Madrid, etc.) or are expected to inherit assets in this country, it’s important to understand the legal and tax implications involved in the inheritance process. Each region in Spain has different laws regarding how inheritance tax is charged. This often creates confusion for taxpayers, especially when assets are transferred between different provinces or when dealing with property owners in multiple jurisdictions.
Early understanding of local law, and advance planning of wills, residency, and lifetime gifts can significantly reduce tax exposure when transferring assets between generations.
Beyond that, inheritance tax planning can prevent legal disputes, delays in the inheritance process, and unexpected demands from various authorities.
What is the difference between Estate Tax and Inheritance Tax?
- Estate tax – imposed on the deceased’s assets before they are transferred to heirs.
- Inheritance tax – applies to all assets received by the heir.
Inheritance Tax in Spain – What You Need to Know?
Spain has no estate tax, but there is an inheritance tax on assets transferred to heirs.
Spanish residents are taxed on all assets and rights they receive worldwide – whether located inside or outside Spain. In contrast, heirs who are not Spanish residents are taxed only on assets located in Spain or realizable there.
Tax rates are progressive, ranging from 7.65%-34%. In Spain, several benefits and exemptions exist. These depend on specific circumstances such as family relationships, disability, life insurance, family business, and permanent residence.
Tax liability is determined based on the net value of assets transferred to the heir – meaning the asset’s value minus liabilities. Tax liability is calculated per the competent region’s legislation on the net asset value received. If the region has not set specific rates, national rates apply. However, the Basque Country and Navarre have separate tax systems where national rates do not apply.
Each region in Spain may also enact tax reductions, which can significantly reduce tax liability. For example, Madrid grants a 99% tax refund for inheritances and gifts received by certain family members.
Gift Tax
Gift tax is an important part of intergenerational asset transfer planning. Often, when property owners learn the inheritance tax amount, they consider transferring assets as gifts during their lifetime. They believe this is preferable to future inheritance. However, gifts may be taxed at rates identical to inheritance tax or even higher.
In Spain, gift tax applies similarly to inheritance tax. Like inheritance tax, gift tax is calculated per specific circumstances such as family relationships and permanent residence.
Therefore, advance planning of inheritance tax and gift tax is essential when transferring assets between generations. Proper planning maximizes existing exemptions and significantly reduces tax liability. It ensures assets transfer to the next generation in an orderly and efficient manner.
Inheritance Taxation in Israel Compared to Spain
In Israel, unlike Spain, there is no estate tax or inheritance tax. However, in certain cases, tax may be imposed on the full inheritance value. For example, capital gains tax applies upon asset sale.
The Israel-Spain tax treaty includes provisions preventing double taxation. However, accurate reporting and filing planning is essential to avoid double payment.
To read the Israel-Spain tax treaty in Hebrew on the Ministry of Finance website, click here.
Drafting a Will in Spain – The Key to Tax Savings and Dispute Prevention
Inheritance doesn’t always pass smoothly to heirs. Sometimes complex procedural steps are needed to obtain a probate order or permit to realize assets.
Drafting an orderly will is not just a matter of personal wishes; it’s an integral part of estate taxation. A detailed will can ensure assets pass smoothly and efficiently to heirs. The will should include the deceased’s wishes but must align with legal requirements. This ensures its validity is not compromised.
At the will drafting stage, in many cases you can choose which law will apply to it. This choice can have a substantial impact on inheritance planning and its future realization.
Without advance planning (inheritance without a will), the applicable law will be that of the deceased’s last and principal residence.
If you own assets in Spain, our recommendation is to draft a will to ensure the transfer of assets is done as smoothly as possible. A will can prevent misunderstandings or lengthy legal processes. It ensures the process proceeds in an orderly manner even after the deceased’s death.
Have You Received an Inheritance in Spain? 8 Steps for Proper Realization of an Inheritance from Spain
1. Factual and Legal Background Investigation
First, check the type of asset to be inherited, its location, the identity and status of heirs, asset value, and other relevant details.
2. Review of Local Legislation
Understanding the relevant country’s tax rules is recommended. This ensures proper and efficient management of inheritance and gift transfers while minimizing unnecessary tax implications.
3. Checking Timing and Location of Inheritance Realization
Examine whether it’s advisable to realize the asset now and if so, where is it better to realize it – in Spain or Israel?
4. Regulatory and Banking Aspects
Check fund transfer costs, whether opening an account in Spain or another country is necessary, and what approvals are required.
5. Planning Asset Transfer
Consider whether to transfer the asset itself or its proceeds. Evaluate the implications regarding tax, exemptions, and deductions.
6. Avoiding Double Taxation
Given the double tax treaty, check whether a credit mechanism applies for tax paid in Spain against Israeli tax liability. Ensure reporting is done correctly and accurately to avoid double payment.
7. Checking Future Impacts on the Asset
Examine future impacts on the asset. For example, future asset sales will often be subject to capital gains tax in Israel as well.
8. Transferring the Asset to Israel
Perform all required actions, submit documents, handle matters with banks in Spain and Israel, and execute the asset transfer.
How Can We Help?
The goal is to transfer the inheritance to heirs in Israel in the most tax-efficient manner. This involves addressing legal issues in Israel and Spain, as well as banking and regulatory matters. For example: Is it better to realize an asset in Spain or transfer it to Israel? How should inheritance funds be transferred to Israeli bank accounts? How can various exemptions among heirs be utilized? Should gifts be given during one’s lifetime? Should a trust be established? Strategic planning, according to law and tax treaties, is essential to minimize tax liabilities.
Nimrod Yaron & Co. has extensive experience providing personal and professional guidance to Israelis with assets or inheritances worldwide, including Spain. We assist from the initial planning stage, through dealings with authorities in Spain and Israel, to transferring inheritance funds to the heir’s bank account.
We work in cooperation with all relevant professional parties in Spain and Israel. We provide legal solutions in tax and banking matters, customized to each case’s circumstances.
If you inherited an asset or wish to bequeath assets in Spain, our team of attorneys specializing in international taxation and inheritance law will be happy to advise you. Contact us for an initial consultation meeting.
Q&A
Do you need to pay tax in Israel on an asset received as inheritance from Spain?
No. There is no inheritance tax in Israel. However, capital gains tax may apply after selling the asset. Check the recommended timing for selling an inherited asset.
Why are there differences in tax rates between regions in Spain?
Each region defines the tax obligation imposed on heirs separately. Each region sets tax rates, exemption amounts, and calculation methods according to its needs. This leads to significant differences between regions.
Why is it important to plan intergenerational asset transfer in advance?
Intergenerational asset transfer from abroad is not just a family matter but also a tax and economic one. Advance planning, addressing legal issues in Israel and abroad, can save substantial money and prevent legal complications.
How can you realize the inheritance optimally and save tax?
To realize the inheritance optimally and save unnecessary tax payments, examine all tax options. These include utilizing exemptions, gift planning, and establishing companies or trusts.
How can you reduce the inheritance tax liability in Spain?
Through advance tax planning, including drafting a will, utilizing exemptions, and giving gifts during one’s lifetime, tax liability can be significantly reduced.
Is it better to give an asset as a gift during lifetime or bequeath it?
The choice between giving a gift and inheritance depends on the circumstances of the specific case. Sometimes a gift will be taxed similarly to inheritance. Therefore, legal and tax aspects should be examined before making a decision.
What are the implications if there is no will?
In the absence of a will, the inheritance will be divided among legal heirs according to Spanish inheritance law.
What documents are required for the inheritance realization process in Spain?
To realize an inheritance in Spain, the following documents are required: death certificate, will (if it exists), copies of heirs’ identity documents, property ownership documents, and bank account confirmations.
How long does the inheritance realization process in Spain take?
The inheritance realization process in Spain can take several months to a year or more. This depends on the estate’s complexity, number of heirs, existence of a will and other factors.
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