In Spain, the Tax on Inheritance and Donations is regulated by Act 29/1987 of December 18thand by its implementing regulation 1629/1991 dated November 8th.
However, the Act 22/2009 of December 18th, which regulates the Financial System of the Autonomous Communities that share common system and the Cities with a Statute of Autonomy, grants 100% of the taxes to the Autonomous Communities, based on a set of criteria, the most important one being the principal residence (Article 32.1).
According to Article 9 of the Act of income tax, the residents in Spain are those who:
– Reside in Spanish territory for more than 183 days of the year.
– Their business activities or economic interests are based in Spain, either directly or indirectly.
The Tax on Inheritance and Donations must take into account both the residence of the deceased and the successor.
Property Inheritance in Spain
The taxpayer (successor or beneficiary) residing in Spain is obliged to contribute by personal obligation, that is, he/she shall pay taxes on their worldwide income, no matter where the inherited properties of the deceased are. However, the taxpayer who does not reside in Spain is obliged to contribute by real obligation, paying taxes only for the properties based in Spain.
Note that the autonomous regulation regarding Tax on Inheritance and Donations presents far more advantages with regards to taxes than the State regulation. For instance, the autonomous regulation of the Community of Madrid applies a 99 % tax deduction and the Community of Valencia applies a 75% tax deduction. This measure, however, is not included in the state regulation.
Therefore, there are three possible cases:
– That both the taxpayer (successor) and the deceased reside in Spain.
– That the taxpayer is not a resident in Spain and the deceased is.
– Or that the taxpayer is not a resident.
In the first case, if the taxpayer (successor) and the deceased both reside in Spain, the regulation of the autonomous community where the deceased spent more days over the last five years prior to his/her death shall apply. This means that if the deceased, in the 5 years prior to his death, has lived 1 year in Valencia and 4 years in Andalusia, the regulation of Andalusia shall be applied.
In the second case, if the deceased does not reside in Spain but the successor does, the State regulation shall be applied.
Lastly, in the third case, if the successor does not reside in Spain, the State regulation shall be applied, regardless of whether the deceased resided in Spain or not.
Finally, it should be noted that the fact that State regulation is less beneficial than the autonomous regulation, has been harshly criticised, as it is considerably less beneficial to non-Spanish residents than to residents. This is why there is currently a debate regarding tax benefits that depend on the taxpayer’s autonomous community residence.