Inheritance tax is often a major concern for those inheriting property or assets in Andalucia. In this article we are going to help you understand what inheritance tax is, how it is applied in Andalucía and the most recent changes that have almost eliminated this tax for many heirs.
Whether you are a resident or non-resident, understanding these types of local tax laws is very important for effective estate planning.
What is inheritance tax in Andalucia?
Inheritance tax, known as Impuesto sobre Sucesiones y Donaciones, is a tax levied on the beneficiaries of an inheritance. In Andalucia, the rules and rates of this tax have undergone significant changes, making it more favourable for many heirs.
Recent Changes in Inheritance Tax in Andalucia
Basic Exemption and New Decree 1/2019
Before the entry into force of the new decree 1/2019 Andalucia had a basic exemption that allowed the first million euros of an inheritance to be tax exempt. Such exemption is maintained.
However, the new decree 1/2019, approved on April 11, 2019, introduced a 99% bonus for assets valued at more than one million euros, which translates into practically eliminating inheritance tax in Andalucia.
This means that beneficiaries will only pay 1% of the tax on the value of the inheritance exceeding one million euros.
Impact on High Value Properties
The tax will be significant for properties in higher value areas such as Mijas or Marbella, where the property can easily exceed one million euros.
Who needs to pay Inheritance Tax?
Whether you are a tax resident or not, if you own property in Spain, your heirs are obliged to declare these assets in Spain as part of their estate upon your death. This obligation applies regardless of the nationality and state of residence of both the deceased and the beneficiary.
Beneficiaries eligible for these bonuses
The inheritance tax exemption applies to first and second degree relatives (Groups I and II), specifically spouses and children. Siblings, aunts, uncles, nieces, nephews and other more distant relatives do not benefit from this exemption. In addition, registered partners (parejas de hecho) are treated in the same way as married couples for inheritance tax purposes, provided they are registered in the Andalusian Registry of Domestic Partnerships (Registro de Parejas de Hecho de Andalucía).
Practical Examples
To make this clearer, let’s look at a couple of practical examples of how inheritance tax could be calculated in Andalucia.
Example 1: High Value Real Estate
Consider a German citizen who owns a rural estate in Andalusia valued at €2,000,000. Upon his death, his daughter, who lives in Germany, would inherit this property. Under the previous law, she would have paid around €648,520 in inheritance tax. Under the new law, she will only pay €10,000, which represents 1% of the value exceeding €1 million.
Example 2: Domestic Partnerships
Assume a Spanish unmarried couple living together in Andalusia. Each partner makes a will in favour of the other, with an estimated inheritance value of €900,000. If the couple is registered in the Registro de Parejas de Hecho de Andalucía, the heir would pay nothing in inheritance tax. However, if the couple is not registered, the heir would pay a considerable amount in inheritance tax, which could be up to €81,360.
Declaration and Transparency
Declaring these assets in Spain does not exempt you from reporting them to the tax authority in your country of residence. The tax liability will depend on the existence of a double taxation agreement between Spain and the country of residence of the heir. Transparency is essential to avoid formal requests from both countries.
Conclusion
Recent changes to inheritance tax laws in Andalucía have made it significantly easier for heirs to inherit property and assets with a minimal tax burden. High-value properties in areas such as Marbella or Mijas benefit the most from these changes, and proper planning can ensure that your loved ones face fewer financial difficulties in difficult times.