Information

Inheritance

Legislation that applies and how to pay taxes

What regulations will determine how much a non-resident heir in Spain pays?

The answer depends on the place of residence of the deceased at the time of death.

In Spain, in accordance with article 9.8 of the Royal Decree of July 24, 1989, the nationality criterion was followed. That is, whenever the inheritance came from a Spaniard, it was subject to Spanish civil law, regardless of where their assets were. However, this changes with the entry into force of the European Union regulation 650/2012 of July 4, 2012. And, from that moment, in Spain begins to apply what article 21 of said regulation says: "The law applicable to the entire succession will be that of the State in which the deceased had his habitual residence at the time of death."

Once we know the basic European standard for non-resident heirs in Spain, it is important to highlight two assumptions so that there is no doubt about the practice:

• Regardless of the nationality of the deceased, if he lived in Spain when the death occurred, the inheritance regulations are Spanish, both for resident and non-resident heirs in Spain.
• Likewise, it makes no difference if the assets you are going to inherit are in Spain or anywhere else in the world. As long as the deceased was residing in Spain when death occurs, you must follow the Spanish regulations on successions.

Well, now we are clear in which cases the Spanish regulations on an inheritance apply. But what does that regulation say? How much do non-resident heirs have to pay? We explain it to you in the next section.

Inheritance tax is the tax that is paid in Spain for the fact of receiving an inheritance, a percentage of its value. And, as we have explained, even if you do not reside here, you may be required to self-assess this tax at the State Tax Administration Agency (AEAT).

But... attention! It is important not to confuse this tax with the non-resident income tax. This is more common and taxes the obtaining of income within Spanish territory, either by carrying out some economic activity or in the form of renting a home, for example. In the case at hand, we are talking about the inheritance and gift tax, which is also applied in the event that we receive a donation from a living person, although this time we focus on the assumption of inheritance.

Inheritance tax for a non-resident heir may vary from one Autonomous Community to another. They are in charge of its management, regulation and collection. And, according to article 32 of Law 22/2009 of December 18, this tax is the responsibility of the Autonomous Community where the deceased had his habitual residence on the date of death.

Everything in order: a non-resident heir must look at the regulation of the Autonomous Community where the deceased resided to find out how much inheritance tax has to be paid to the Treasury. However, the matter is a little more complicated, because in Spain we have the so-called common regime by which most of the Autonomous Communities are governed and, on the other hand, there are others that enjoy the well-known charter rights and regulate inheritance tax independently. These last Communities are the following:

• Aragon
• Catalonia
• Galicia
• Balearic Islands
• Basque Country
• Navarre

But, when is a state or regional regulation applied? Apparently it seems simple, because in principle logic tells us that if the deceased resided in Galicia, for example, the foral applies. But this is not the case, because the criterion of residence is not taken, but rather that of civil residence. And, according to point 14.2 of the Civil Code, the following have civil neighborhood:

• Those born to parents who have such a neighborhood.
• Those who have resided continuously for two years, provided that the deceased had expressed that will.
• Those who have resided continuously for ten years, without a declaration to the contrary during that entire period.

In short, you will have to look at the Autonomous Community where the deceased person from whom you are going to inherit the assets resided, or the one who was a neighbor in the case of one that enjoyed foral rights. This data will determine how much you are going to pay in Spain for your inheritance regardless of your nationality and where the assets you acquire are located.

When do I have to pay the Inheritance and Gift Tax in Catalonia?

You are obliged to present and pay the Inheritance and Donations Tax in the following cases:

• Habitual residence of the deceased in Catalonia. If the deceased had his habitual residence in Catalonia, regardless of your place of residence, you must pay taxes in Catalonia.
• Habitual residence of the donee in Catalonia. When the donation received is, for example, money (movable property) and you reside in Catalonia, you must pay taxes in Catalonia, regardless of where the donor resides.
• Donations of real estate located in Catalonia. When the donation is, for example, a flat in Catalonia (real estate) you will have to pay taxes in Catalonia, regardless of your place of residence.

We focus on the Inheritance Tax in Catalonia, that is, when the deceased person from whom you receive something in inheritance resided in Catalonia.

It is important to know that Law 5/2020, of April 29, on fiscal, financial, administrative and public sector measures and the creation of the tax on facilities that affect the environment, introduced important changes in the Inheritance Tax and Donations, applicable from May 1 of that year.

The change affects, among others, heir children over the age of 21, who are especially harmed: these heirs, belonging to Group II, will begin their bonus at 60 percent (up to 100,000 euros), and not at the 99, as it was before that date. For spouses and descendants under 21 years of age, the 99 percent bonus is maintained up to that amount. In both cases, the bonus is reduced in the following economic tranches.

How much do I have to pay for Inheritance Tax in Catalonia?

To know what you should pay, you will have to:

1. Calculate the hereditary mass

The estate is calculated by adding the real value of the assets inherited and subtracting the debts and deductible expenses.

The value of the goods will be the one they have at the time of acquisition.

Deductible debts and charges include:

• The debts left by the deceased and are transmitted with the inheritance, for example tax debts, with Social Security...
• Expenses derived from death, last illness, burial and funeral.

The total hereditary estate constitutes the taxable base of the Inheritance Tax.

2. Make the appropriate reductions

After applying the reductions according to the degree of kinship with the deceased or the type of property inherited, the tax base is obtained.

Later we will detail what these reductions are.

3. Determine the tax rate

The tax quota is determined by applying to the tax base

• The applicable rate will range from 7.00% to 32% depending on the amount inherited.
• A multiplier coefficient depending on the degree of kinship, between 1.00% and 2.00%.

4. Apply deductions or allowances

Once the deductions or allowances established by Law 19/2010, of June 7, regulating Inheritance and Gift Tax in Catalonia have been applied, you will obtain the fee to pay.

In Catalonia, the inheriting spouse or stable partner can apply a discount of 99% of the tax rate. Which means that the amount to pay will be very low.

The descendants and ascendants can apply the bonus of article 58 bis. 2 of the aforementioned Law.

These deductions can be reduced by half if the heir applies any of the reductions that we detail below. Except, the reduction for habitual residence that is applied in any case.

What are the reductions on the tax base in Catalonia?

The Catalan Tax Agency (ATC) establishes the following reductions, some of which replace those regulated by the State.

Reduction by degree of kinship

In Catalonia, the following reductions will be applied according to the degree of kinship between the heir and the deceased:

Group I.- To descendants (children, grandchildren, great-grandchildren...) under 21 years of age, 100,000 euros, plus 12,000 euros for each year less than 21 that the heir has. It may not exceed 196,000 euros.
Group II.- The following relatives and their respective reductions are included:

1. To the spouse or stable partner, 100,000 euros.
2. For children aged 21 or over, 100,000 euros.
3. To grandchildren, great-grandchildren and other descendants aged 21 or over, 50,000 euros.
4. To members of a mutual aid cohabitation relationship, 50,000 euros, provided they have lived with the deceased for at least 2 years and it is accredited by means of a public deed or act of notoriety.
5. To parents, grandparents and other ancestors, 30,000 euros.

Group III.- Second and third degree collateral relatives and ascendants and descendants by affinity 8,000 euros. Examples of Group III relatives: brothers, uncles, nephews, fathers-in-law, sons-in-law, and daughters-in-law.
Group IV.- Fourth-degree collateral relatives (cousins) or more distant relatives and strangers, no reduction is applied.

Disability Reduction

The amount of the reduction depends on the degree of disability:

If the degree of disability is equal to or greater than 33%, a reduction of 275,000 euros corresponds.

Reduction for acquisition of habitual residence

A reduction of 95% of the value of the habitual residence of the deceased can be applied to the tax base, with a joint limit of 500,000 euros, which will be prorated among the heirs.

The limit for each heir cannot be less than 180,000 euros.

This reduction will apply to the following heirs:

• Spouse or stable partner of the deceased.
• Cohabitant in a mutual aid relationship.
• Descendants of the deceased.
• Ascendants of the deceased.
• Collateral relatives of the deceased.

Other reductions

The Tax Agency of Catalonia contemplates the following:

1. For insurance: The amount depends on the date of contracting the insurance.
2. For the acquisition of goods and rights related to an economic activity.
3. For acquisition of shares in entities.
4. For the acquisition of certain rustic farms dedicated to forestry.
5. For the acquisition of assets of the deceased person used in the agricultural exploitation of the heir or legatee.
6. For the acquisition of cultural and natural heritage assets.
7. By decennial superimposition.

Having the advice of a professional specialist in inheritances and donations in Catalonia is of great importance to ensure that taxes are settled correctly and all the bonuses and deductions to which the interested party is entitled are applied.