Receiving an inheritance from abroad: special considerations for Spain taxpayers

Tax description Article

My habitual residence is in Spain and I receive an inheritance abroad. Do I have to pay taxes in Spain? Can I deduct inheritance tax paid abroad?

The tax consequences in Spain of receiving an inheritance abroad will depend on where the heir lives (see: When am I a tax resident in Spain? How do I calculate the 183 days?). According to Spanish Law 29/1987 of 18 December on Inheritance and Gift Tax (hereinafter, the “LISD”), taxpayers are subject to two types of obligations: a personal obligation, which is what we will deal with in this article; and an in rem obligation.

Article 6 of the LISD states that taxpayers with habitual residence in Spain are subject to inheritance tax as a “personal obligation”, regardless of where the inherited assets or rights are located. In other words, if tax residents in Spain receive an inheritance abroad, they are required to file and pay inheritance tax simply because they are tax residents in Spain on the date of the person’s death, and will therefore have to pay tax on everything they inherit in the rest of the world.

Nevertheless, this rule has exceptions if there is an international treaty (DTT) on inheritance between Spain and the country from which the inheritance originates. At present, Spain only has three double taxation treaties on inheritance tax with France, Greece and Sweden. The treaties refer only to inheritance, not gifts.

To that end, it is necessary to see what types of assets or rights are inherited and what the treaty says in order to determine which jurisdiction is competent to levy them. As an example, if a French national who is resident in Spain inherits real estate located in France from his father who died in France, he does not have to pay inheritance tax in Spain because the double taxation treaty with France states that real estate (including attachments) is only subject to inheritance tax in the country where it is located. In other words, in this case he only pays taxes in France.

On the other hand, if the same inheritance includes life insurance, he does not have to pay taxes in France but in Spain, according to the treaty.

Therefore, we must firstly determine the tax residence of the heir and then check whether there is a DTT to avoid double taxation on inheritance. Otherwise, we must resort to Spanish domestic law. Article 23 of the LISD states that, when the tax liability arises due to a personal obligation (the heir is a tax resident in Spain), the taxpayer may deduct the lower of the following two amounts:

  • The actual amount paid abroad regarding similar taxes affecting the capital gains taxable in Spain.
  • The result of applying the average effective rate of this tax to the capital gains corresponding to assets that are located or rights that can be exercised outside Spain, when they are subject to taxation abroad for a similar tax.

Example: An Italian national residing in Spain receives the inheritance of his parents, who live in Italy.

Solution: Since there is no DTT on inheritance between Italy and Spain, we must apply Spanish law as the heir is resident in Spain. In this case, the Italian national is a tax resident in Spain and, therefore, has the personal obligation to pay inheritance and gift tax. The taxable base is determined by taking into account all the assets and rights inherited, subtracting any deductible charges and debts, and the tax paid in Italy may be deducted from the resulting tax liability within the limits established by law.

Finally, in addition to inheritance tax, the heir, upon acceptance of the inheritance, may also have to comply with the obligation to file Form 720 relating to the disclosure declaration of assets and rights abroad, provided that this exceeds the minimum limits required for this obligation.

Therefore, it is crucial to receive advice from lawyers specialised in international inheritance taxation. Such professionals can analyse the case, determine the relevant regulations and prepare the necessary documentation to file and manage the corresponding taxes. If you need advice, please contact our team of specialists.