Inheritance Tax: How to pay tax in Spain on assets located abroad
Introduction: What is Inheritance and Gift Tax and how is it applied in Spain?
Inheritance and gift tax and taxation of assets located abroad are important aspects of the tax system that affect many people. These taxes are designed to tax transactions involving the transfer of property and wealth between individuals, whether by inheritance or by gift.
Inheritance tax is levied when a person dies and his or her assets are passed on to his or her legal heirs. The amount of tax payable depends on the value of the inheritance and the family relationships between the deceased and the beneficiaries.
On the other hand, gift tax is levied when a person makes a gratuitous transfer of goods or rights to another person. This tax varies according to the autonomous community, but generally also depends on the value of the donated goods and the degree of kinship between the donor and the recipient.
Regarding taxation on assets located abroad, it is important to note that citizens must declare their international assets to the relevant tax authorities. This includes real estate, bank accounts, investments or other financial assets located outside the country of residence. Failure to comply with these obligations can result in significant financial penalties.
If you are resident in Spain and receive an asset located abroad through an inheritance or gift, see how you will be taxed on this acquisition for Inheritance and Gift Tax purposes.
It is essential to have a specialised tax advisor to correctly understand how these taxes work and to comply with all the corresponding tax obligations. In addition, it is important to keep informed about any legislative changes that may affect taxation in these cases.
Taxation of assets located abroad received through inheritance
Inheritance or gift
Assets abroad
International inheritance tax can vary depending on the country where the inherited assets are located and the tax laws that apply there. It is important to bear in mind that some countries have international treaties or agreements to avoid double taxation, which means that it is possible to avoid paying tax in both the country of origin and the receiving country.
If you live in Spain and receive by inheritance or donation assets located abroad (real estate, money in current accounts, shares in foreign companies…), you must pay inheritance and gift tax (ISD) on them, as you would if these assets were in Spain.
ISD is levied on capital gains obtained by individuals for profit (i.e. by inheritance or donation), without differentiating where the money or the assets and rights that give rise to such capital gains are located (outside or inside Spain).
Management
The body to which the tax must be paid, as well as the applicable regulations, may vary depending on the form of transfer (donation or inheritance), the type of property being transferred and whether or not the transferor is resident in Spain:
| Form of acquisition | Collecting Agency | Applicable regulation |
| Donation of real estate | State Treasury | Choice between state or regional regulation |
| Donation of other assets | Autonomous Community of the donee | Autonomous Community of the donee |
| Inheritance of a resident | Autonomous Community deceased | Autonomous Community deceased |
| Inheritance from a non-resident | State Treasury | Choice between state or regional regulation |
Donation
Donation is an altruistic and generous act that involves transferring goods or money to another person or entity without receiving anything in return. However, it is important to note that donations may be subject to taxation, both domestically and internationally.
As you can see in this summary table, if you receive a donation of assets located abroad, in general the ISD levied will be for the autonomous community in which you reside and the regulations of that community will be applicable. However, if it is a property located abroad, given that in this case the ISD will be for the State, you can choose between applying the State regulations or those of your Autonomous Community .
Inheritance
In the case of inheritance of property located abroad, taxation will depend on where the deceased was resident for tax purposes:
If the deceased lived in Spain, the regulations of the Autonomous Community in which he/she resided will apply.
If the deceased lived abroad, he/she may choose between paying tax on the inheritance according to the Spanish legislation (which, in general, is less favourable) or according to the regional legislation (which, in general, offers more incentives and lower taxation).
Regional regulations
In this second case, if you opt to be taxed according to the regulations of an autonomous community:
If in the inheritance there are also other assets located in Spain, you will have to apply the regulations of the autonomous community in which the highest value of those assets is located.
If all the inherited assets are abroad, you must apply the rules of the Autonomous Community in which you reside.
A resident in Italy dies and bequeaths to his son, resident in Barcelona, a house in Milan valued at 400,000 euros, a flat in Seville worth 250,000 euros and 50,000 euros in an account in an office in Valencia. In this case, the heir will be taxed by the State for the entire value of the inheritance (i.e. 700,000 euros), and will be able to choose between applying the State ISD regulations or the Andalusian ISD regulations.
To avoid legal and tax problems, it is recommended that you consult a tax advisor specialised in these matters before making or receiving an international donation. Asesoria Orihuela Costa will be able to provide you with personalised guidance on how to comply with your tax responsibilities and ensure you are up to date with current regulations.
Double taxation deduction
Foreign tax
When you receive a donation or inheritance of a foreign property, you may have to pay a tax outside Spain similar to the Spanish Inheritance and Gift Tax (ISD). In this case, when paying ISD in Spain, you will be able to take advantage of a deduction to avoid international double taxation on the tax payable.
Calculation
This deduction will be equal to the lesser of the following two amounts:
The tax paid abroad on assets inherited or received by donation.
The result of applying the average effective rate resulting from the liquidation of the Spanish ISD to the said assets.
Net taxable income
For these purposes, when calculating the latter amount :
The effective average rate is calculated by dividing the total tax liability by the taxable base attributable to the entire value of the inherited or donated assets. The taxable base is the taxable base less any applicable reductions.
This average rate is then multiplied by the specific taxable base corresponding to the foreign assets.
Specific taxable base
In order to determine the specific taxable amount, the applicable allowances (e.g. allowances for the main residence or for the transfer of a family business) and the proportional part of the “general” allowances to which one is entitled (for family relationship, disability, etc.) must be imputed to the assets located abroad.
These calculations have to be made mainly for inheritances. In donations, in general, there are no general or specific reductions (except in some autonomous communities).
Example
Inheritance
A 21-year-old son receives the deceased’s habitual residence – 250,000 euros – and other assets (including trousseau) located in Spain for 350,000 euros. He also receives a flat abroad valued at 200,000 euros, for which he is required to pay a tax of 60,000 euros in the country where it is located.
Settlement of ISD
With these data, when settling Inheritance Tax in Spain, the son will be entitled to a reduction of 15,957 euros for kinship and 122,606 euros for the habitual residence, the total taxable base will be 661,437 euros (800,000 – 15,957 – 122,606) and the total tax liability will be 158,796 euros; therefore, the effective tax rate will be 24.0077%.
Tax payable
See the applicable double taxation deduction and the full settlement:
| Concept | Main residence | Other goods | Foreign flat |
| Inheritance value | 250.000 | 350.000 | 200.000 |
| Relationship | -4.987 | -6.981 | -3.989 |
| Habitual residence | -122.606 | – | – |
| Net base | 122.407 | 343.019 | 196.011 |
| Full ISD tax | 158.796 | ||
| Deducción internac. | -47.058 | ||
| Cuota a pagar ISD | 111.738 | ||
The reduction for kinship is distributed proportionally. On the other hand, the reduction for the main residence is attributed only to the home, given that it is a specific reduction.
The lower of the tax paid abroad (60,000 euros) and the tax applicable in Spain on the flat located abroad: 47,058 euros (196,011 x 24.0077%).
Double taxation treaty
International double taxation is a relevant tax issue affecting individuals and companies with economic activities in different countries. It occurs when a taxpayer is taxed in both the country where he resides and the country where he earns his income.
To avoid this situation, many countries have established bilateral agreements to avoid double taxation. These agreements are international treaties that allow taxpayers to benefit from certain tax advantages, such as tax exemption or reduction in one of the two countries involved.
Is there an agreement between Spain and the other country?
Although the general rule applicable is the one indicated above, in these cases it is necessary to check whether Spain has signed an agreement to avoid double taxation with the territory in which the assets received are located, and whether this agreement establishes any rules in relation to the taxation applicable to ISD.
Inheritance in three countries
For these purposes, Spain has signed agreements with three countries in which clauses have been established to avoid double taxation on inheritances (France, Greece and Sweden). In these cases, the inheritance of assets must be made in accordance with the provisions of these agreements (which take precedence over the domestic regulations of each country).
For example, according to the agreement to avoid double taxation signed between France and Spain, if a person resident in Spain inherits money from a relative resident in France and the money was in an account in that country, the balance of the account can only be taxed for ISD in France and not in Spain [DGT V1814-23] . According to the Spanish rules, it should also be taxed for ISD in Spain, but, as the agreement exists, the internal rules are not applicable.
