This tax is called Successions Tax (IS) in Spain as the tax is levied on the person inheriting, not the estate.
UK citizens are used to deducting the tax-free amount from the value of the estate and applying a tax rate of 40% on the balance. In Spain the person inheriting is taxed. A son inheriting the some amount as a nephew would pay less tax, as he is a closer relative. There are other complications.
- The IS tax rules are decided by the regional governments, not the national government. Some regions do not have an IS tax. Other areas do but with completely different rules so that the spouse can inherit tax free.
- There is no exemption between spouses. Thus in the UK the wife can inherit tax-free, but this is not the case here.
- Spanish IS liability is based on tax residence, while the UK tax is based on domicile. Most UK citizens will retain their UK tax domicile even if living in Spain.
It is important to make a Will in Spain covering Spanish assets. This will speed up the distribution of the estate on death and avoid the necessity of having a UK Will translated into Spanish. The Will is issued in English and in Spanish and has to be signed in front of a notary.
To get an idea of what is required, see this Will format and Questionnaire.
- Is levied on: Beneficiaries resident in Spain,
- Assets in Spain left to anyone, whether they are resident in Spain or elsewhere. As these assets have to be transferred using a Notary, the Notary will not process the transfer until the tax is paid.
Assets outside of Spain bequeathed to persons outside of Spain do not seem to attract tax, mainly because there is no way of collecting it. Some people mortgage their Spanish properties, deposit the funds in the UK and leave them to their children, who are not Spanish residents.
A non-resident will pay IS tax on inheriting a Spanish property. This property will also form part of the assets for UK Inheritance Tax if the deceased were domiciled in the UK. The IS tax paid can be set off against the UK tax liability pro rata.
Bear in mind that the tax will vary according to the relationship of the inheritor with the deceased and the existing wealth of the inheritor. Thus the wealthier you are on inheriting, the more tax you will pay.