23.11.2024 
The inheritance and gift tax in Spain is one of the key taxes that both residents and foreigners owning property here need to know about. The official name of the tax is ISD (Impuesto sobre Sucesiones y Donaciones) and it is payable when property or rights are transferred gratuitously from one natural person to another in two main cases:
In inheritance, when property passes to the heir after the owner s death.
In gifting, if the transfer of property takes place during the donor s lifetime.
Spain consists of autonomous communities and each one sets its own tax rates and exemptions. Therefore, the procedure and amount of inheritance and gift tax can vary significantly depending on the region. Below we examine how the tax is calculated, what exemptions are provided and how the tax burden can be optimized.
General Principles of the ISD (Impuesto sobre Sucesiones y Donaciones) Tax
Progressive Scale
The ISD (Impuesto sobre Sucesiones y Donaciones) has a progressive scale: the higher the value of the transferred property, the higher the tax rate. The basic state rates range from 7,65% to 34% however autonomous communities have the right to adjust these rates on their own or introduce additional exemptions.
Personal Nature
The tax is paid by the recipient of the property heir or gift recipient. In inheritance, the tax amount is calculated in the region where the deceased resided and in gifting it depends on the place of residence of the gift recipient if it concerns movable property or on the location of the property if real estate is transferred.
Calculation of the Inheritance Tax
The calculation of the inheritance tax in Spain usually takes place in several stages:
Gross inheritance stage: all inherited assets and rights are summed, to which 3% is added as an evaluation of domestic property.
Net inheritance stage: the debts of the deceased and funeral expenses are deducted from the result.
Division among heirs: the remaining amount is divided among the heirs according to the will or by law in its absence.
Taxable base: any insurance policy payouts, if any, are added to each heir s share.
Deductions and exemptions based on kinship: state and regional exemptions are applied as well as discounts depending on the degree of kinship.
Preliminary quota: the corresponding progressive rate is applied to the taxable base.
Tax quota: the result is multiplied by an increasing coefficient that depends on the degree of kinship of the heir and the value of the property.
Final amount: after all deductions and exemptions the final tax payable is determined.
Calculation of the Gift Tax
The gift tax is also calculated based on the total value of the transferred property, but the system of exemptions is mainly established at the regional level. At the state level there are no special discounts for gifting however:
Each autonomous community has the right to introduce its own tax exemptions for close relatives such as spouses, children and parents.
More often, exemptions relate to the transfer of family businesses so as not to harm their economic situation and to avoid job cuts.
The transfer of real estate as a gift requires taking into account valor de referencia (approximate market value), from which the taxable base may be calculated.
Regional Exemptions and Differences
In 2024, Spain continued the reforms of the inheritance and gift tax that began in 2023, so in some autonomous communities the tax has been reduced to symbolic amounts or completely abolished. Key examples:
Andalusia: A deduction of up to 1 million euros from the taxable base for close relatives such as spouses, children and parents. For the third and fourth degrees, lower deduction amounts are provided.
Madrid: For spouses and direct relatives, the exemption is 99% for both inheritance and gifting.
Valencian Community: Usually a 99% discount applies for spouses, children and parents. In the case of real estate, it is necessary to take into account valor de referencia.
Catalonia: A reduction in the taxable base for close relatives; higher deductions for children under 21 years.
Basque Country: Exemption of up to 400000 euros for children, parents and spouses. If this amount is exceeded, a rate of 1,5% is applied.
Canary Islands: A 99,9% exemption is often used for both inheritance and gifting when it involves close relatives.
Particularities of Gifting in Spain
Formalization of the Gift
Any gift must be formalized before a notary, especially in the case of transferring real estate or high-value assets. The recipient is required to submit the corresponding declaration and pay the tax within the established deadlines.
When gifting money, there is an option to reduce the tax if the funds are used for the purchase of a first permanent residence. In some regions, a significant discount is applied provided that the documentation is correct and the deadlines are met.
Gift vs Loan
Sometimes, to avoid paying the gift tax, parties formalize a loan agreement. However, such a decision requires the actual return of the borrowed funds within the agreed period. If the return is not made, the tax authorities may deem the transaction to be a gift and reassess the tax.
Minimizing the Tax Burden
Gifting during lifetime: When it comes to a cash gift to a close relative for the purchase of a first apartment, in some cases the gift tax is lower than the potential inheritance tax.
Distribution of assets: The transfer of assets to several heirs or gift recipients simultaneously reduces individual shares and helps to take advantage of exemptions for each recipient.
Family business: The transfer of company shares is often taxed at a reduced rate, which preserves the company s stability and jobs.
Notarial Formalization and Required Documents
To certify the act of gifting or inheritance at a Spanish notary, the following are required:
Passports or DNI (Documento Nacional de Identidad) for residents in Spain, or NIE (Número de Identidad de Extranjero) for foreigners.
Details of the residence of each participant in the transaction.
Information about the marital status of the parties.
Evidence of the transfer of funds (for gifting).
Tax identification numbers for non-residents.
Within one month after notarization, a tax return must be filed and the tax paid. In inheritance, the deadline is six months from the date of death, with the possibility of an extension. Failure to meet the deadlines results in penalties and fines.
Municipal Capital Gains Tax (Plusvalia Municipal)
In addition to ISD, when inheriting or gifting real estate, the municipal capital gains tax (plusvalia municipal) must also be considered. It is calculated at the local government level and depends on the cadastral value of the land and the period of ownership. Recent reforms have allowed for the selection of the tax calculation method in order to avoid excessive payments in the event of a drop in the actual market value.
Conclusions
The inheritance and gift tax in Spain plays a significant role in financial planning. Considering that the ISD rate can reach 34% and that in some cases increasing coefficients are applied, it is extremely important to assess the potential tax burden in advance. The differences between autonomous communities are enormous: if in one region the tax is almost nil for children and spouses, in another they may have to pay a considerable sum.
To reduce risks, it is recommended to:
Plan the transfer of assets in advance, if necessary in the form of a gift.
Take into account the local legislation of the autonomous community where the donor or deceased resided.
Study the possibilities of exemptions and deductions, especially if it concerns a first home or a family business.
Consult specialists such as lawyers and tax advisors to correctly formalize all documents and pay the tax on time.
With an appropriate approach, tax obligations can be significantly reduced and the process of transferring assets simplified. Knowing the local specifics, deadlines and regulations is the key to ensuring that the transfer of ownership takes place quickly and without unexpected financial losses.
