What inheritance taxes need to be paid and who needs to pay them?
- Inheritance and Gift Tax - inheritance category (ISD)
To be paid by the beneficiary of the estate.
- Personal income tax (IRPF)
It will be necessary to submit a personal income tax return in the name of the deceased for any income generated from 1 January up to the date of death. Unrealised income, i.e., income not actually generated, should not be included in said return.
- Tax on the Increase in the Value of Urban Land - Municipal Capital Gain (IIVTNU)
To be paid by the beneficiary who has received real estate as part of the inheritance.
Inheritance and Gift Tax - inheritance category (ISD)
What is Inheritance and Gift Tax (inheritance category) charged on?
The acquisition of assets and rights received as part of the estate, as well as the collection of amounts by the beneficiaries of insurance contracts when the contracting party and the beneficiary are not the same person.
Who is obliged to pay Inheritance and Gift Tax (inheritance category)?
The beneficiaries of the estate, regardless of whether they are tax residents in Spain or abroad. However, taxation will differ depending on whether they are tax residents in Spain or abroad.
Do companies pay Inheritance and Gift Tax (inheritance category)?
No, they will pay Corporation Tax (IS).
What is a tax resident in Spain taxed for?
For all assets received as part of the estate, whether they are found in Spain or abroad. For assets abroad, it must be assessed whether the assets will be taxed in the country they are located in.
What is a non-tax resident in Spain taxed for?
For the assets received in the estate that are located in Spain (link with Spanish territory). For both assets in Spain and abroad, it must be assessed whether the aforementioned assets will be taxed in the country they are located in.
What regulations apply to an estate?
If the beneficiary and the deceased are tax residents in Spain, the regulations of the corresponding Autonomous Community must be applied, based on certain "points of connection".
For every other case, it will be possible to opt to apply either the regulations of the Autonomous Community (CCAA) according to certain "points of connection" or national regulations
What are "points of connection"?
- If the deceased is resident for tax purposes in Spain: the estate is regulated by the regulations of the Autonomous Community in which the deceased spent most time in the five years immediately prior to their death.
- If the deceased is not resident for tax purposes in Spain:
- The regulations of the Autonomous Community where the highest value of the estate assets and rights is located will apply.
- If there are no assets or rights in Spain, the regulations of the Autonomous Community in which each beneficiary lives will apply.
If the estate contains real estate, do the regional regulations on real estate location apply?
No, the regional regulations applicable to the estate are the same regardless of whether personal property (cash, financial assets, insurance, etc.) or real estate is received. The applicable regulations will be those established by the corresponding Autonomous Community as explained above.
Why is it so important to determine the applicable regional regulations?
- Tax advantages: reductions and discounts.
- Tax scale and multiplier coefficient.
Because the Autonomous Communities are authorized to regulate certain aspects of the ISD:
The various regulations of the Autonomous Communities can lead to significant differences for the purposes of inheritance tax. For example, better tax advantages or a lower tax scale may apply in different Autonomous Communities.
Regional specificities should be checked with an independent tax adviser outside Banco Santander.
What difference does it make if the deceased was married under the economic regime of community property?
First, the conjugal partnership of spouses will need to be dissolved: 50% of the assets will be assigned to the surviving spouse in payment of the dissolution of the property. This operation is not generally taxed.
Second, the estate will be distributed: 50% of the remaining assets will be awarded to the beneficiaries in payment of the estate and will be taxed under ISD.
What is the payment scheme for Inheritance and Gift Tax (inheritance category)?
+ Value of the assets
+ Value of associated assets (inheritance)
- Charges, debts and deductible expenses
-National government and/or regional reductions
x Rate (progressive rate)
Gross tax payable
x Multiplier coefficients (according to existing equity)
-Deductions and bonuses (national government and/or regional)
What value is used for assets for the purposes of Inheritance and Gift Tax (inheritance category)?
The market value at the date of death is used, unless the value declared by the beneficiaries is higher, in which case this value will be used (explained under "What value is used for real estate for the purposes of ISD tax (inheritance category)?
How does the bank determine the market value of the assets received in the estate?
- Investment funds: net asset value.
- Equity: market price.
- Accounts: balance amount.
- Government Bonds: nominal amount.
- Treasury bills, promissory notes and other bonds: market price.
It depends on the type of asset, but, according to current regulations, the corresponding value of the below assets on the date of death is always applied:
What value is used for real estate for the purposes of ISD tax (inheritance category)?
The reference value provided for in the land registry regulations at the date of death. If the value declared by the beneficiaries is higher than its reference value, this value will be used. When there is no reference value or it cannot be certified by the Dirección General del Catastro (General Directorate of the Land Registry), the higher of the two following values will be used: the declared value or the market value.
Are pension plans subject to Inheritance and Gift Tax (inheritance category)?
No, they are taxed as personal income. The beneficiaries will be taxed for the pension plan as income from work under personal income tax when the pension is redeemed (see question: "Are there any tax advantages for redeeming a pension plan?"), but not at the time of death.
How is the surviving spouse taxed (beneficiary of insurance) if married under the community of property regime?
If the premium was paid from the jointly owned property, the surviving spouse will only be charged ISD for half of the amount received. The rest is taxed as capital gains under the personal income tax of the surviving spouse.
How are succession agreements with delivery of present goods taxed?
Succession agreements are a civil right in certain regions (Catalonia, Galicia, Balearic Islands, Navarra and the Basque Country).
In general, succession agreements will be taxed as if they were an inheritance (explained under “What inheritance taxes need to be paid and who needs to pay them?”). However, they would be taxed as a gift if the assets received are transferred within five years of concluding the succession agreement or the death of the person who grants the succession agreement, if earlier.
What aspects are relevant for determining the tax payable?
- Value of the assets received in the estate. The higher the value of the assets, the more tax will be paid.
- Degree of kinship with the deceased. The lower the degree of kinship, the more tax will be paid.
- Pre-existing net worth of the beneficiary. The higher the net worth at the date of death, the more tax will be paid.
- Applicable regional regulations (explained under “Why is it so important to determine the applicable regional regulations?”).
What is the deadline for submitting the ISD (inheritance category) return?
Six months from the date of death.
Can I request an extension of the deadline for submission?
Yes, but the application must be submitted within the first five months of the submission window. Regional specificities should be checked with an independent tax adviser outside Banco Santander.
How long is the extension period?
Six months. Regional specificities should be checked with an independent tax adviser outside Banco Santander.
Personal income tax (IRPF)
What income should be included in the personal income tax paid by the deceased?
Income actually generated from 1 January to the date of death.
What happens to income generated after death?
The income generated from the date of death and up to 31 December must be included under the personal income tax of the beneficiaries that receive the assets (explained more under: “Where should the post-death income be included if the inheritance assets have not yet been awarded on the date on which the personal income tax return is submitted?”).
Where should the post-death income be included if the inheritance assets have not yet been awarded on the date on which the personal income tax return is submitted?
The income should be declared in equal proportions among the beneficiaries of the estate. When it is known exactly how the estate will be distributed, the personal income tax returns must be completed, and should only include the income that corresponds to the assets awarded to each heir.
What sale price should be taken into account if an asset acquired by way of inheritance is sold?
The value taxed under ISD (inheritance category) should be used, plus the expenses and taxes resulting from the sale, for example: the inheritance tax paid in the proportion corresponding to said asset, the municipal capital gain in the case of real estate, the expenses incurred by the notary public, managing agent, etc. Since all these expenses signify a higher sale value, they consequently reduce tax in the event the asset received by way of inheritance is later sold.
Can I make transfers between investment funds without incurring tax, in the case of funds acquired by way of inheritance?
Yes, it is possible for the beneficiaries of the estate who are resident natural tax persons in Spain to carry out transfers without incurring tax, and this will not generate any tax impact for them as long as both the investment fund of origin and destination are transferable and the rest of the requirements set by the Personal Income Tax regulations are met.
For further information, please contact your agent.
Are there any tax advantages for redeeming a pension plan?
- Takes place in the form of capital.
- Takes place on the part of the plan dating back before 31 December 2006.
- Takes place in the two years following the death (until 31 December of the second year after the death)
A 40% reduction in personal income tax provided that the redemption:
Tax on the Increase in the Value of Urban Land - Municipal Capital Gain (IIVTNU)
What is this paid on?
In the case of real estate acquired through inheritance, tax must be paid on the increase in value of urban land from the date the property was purchased by the deceased until their death.
How is the amount to be paid determined?
It depends on the Ordinance of the municipality where the properties are located, but in general, the amount payable will be determined by the cadastral value of the property and the number of years the deceased owned the property for. The higher the cadastral value and the longer the period of ownership, the more tax will be paid. Optionally, tax can be paid on the increase in value actually obtained.
Does it form part of the cost of buying the property in the event of subsequent sale and is there an impact on personal income tax?
Yes, the sale cost increases and less tax is consequently paid in the event of subsequent sale.
Wealth Tax (IP)
What is this paid on?
Net worth (assets less liabilities) held by natural persons as of 31 December of each year.
How is the amount to be paid determined?
The calculation is based on specific valuation rules for each type of property owned. As in the case of ISD tax, there are different regional specificities depending on the habitual residence of the taxpayer who owns the assets, so you must check the tax situation with an independent tax adviser outside Banco Santander.
Is there an obligation to submit the Wealth Tax (IP) return in the name of the deceased?
No, if the deceased did not hold the wealth as of 31 December. In this case, the beneficiaries must submit the Wealth Tax (IP) return, if the limit is exceeded, for the assets awarded in the estate and which they own as of 31 December of each year.
1. Note that transfers of assets received as a result of succession agreements made after 10 July 2021 will be treated as gifts.