As you will already be aware if you read our post on “Inheritance Tax reform in Andalucia”, a much needed revamp of Inheritance Tax legislation took place in Andalucia in 2017.
As you may also have heard, thanks to a political agreement between PSOE and Ciudadanos, further improvement on this legislation came into effect on the 1st January 2018 and April 2019, by which a tax allowance of 1,000,000 € was introduced for some direct family members, as well as a fied 1% tax rate in all cases.
Who does this apply to?
This news, as often happens, has given way to some confusion that this in fact refers to a general tax allowance, which is not the case. The 1,000,000 € exemption per beneficiary (in Spain each beneficiary is taxed rather than the estate – for more information check out our post “Inheritance Tax reform in Andalucia”) will only apply to family members that come under Group I and II in accordance with Andalucia’s Inheritance Tax legislation. The groups under this legislation are as follows, and are based on the beneficiary’s relation to the deceased:
|Group I||Blood or adoptive descendants under 21.|
|Group II||Blood or adoptive descendants 21+, spouses and blood or adoptive ascendants.|
|Group III||Collateral relations of 2nd and 3rd degree (siblings, nephews, nieces, etc.), and other ascendants and descendants (stepparents, stepchildren, etc.).|
|Group IV||Other collateral relations (cousins) and strangers.|
This means that the 1,000,000 € tax exemption does not apply to siblings, nephews, nieces, cousins, strangers, etc. These have their own, much lower allowances.
Finally, a further condition to being entitled to this exemption is that the beneficiary’s existing assets are no more than 1,000,000 €.
In addition, a reduced tax rate of 1% applies to these types of beneficiaries, as far as any amount that surpasses this allowance.
Changes to Gift Tax
The 1,000,000 € tax allowance will also apply to the direct family members described above, only in the event that a living gift is made for the purpose of the beneficiary purchasing his/her first home, or for a business startup or expansion. Obviously certain conditions are put on this exemption that will ensure the gift is being made for that purpose.
Once again, the 1% tax rate applies in the case of a living gift to these beneficiaries from Group I and II
In conclusion, despite having some limitations, this is a welcome change that effectively does away with Inheritance Tax in Andalucia for direct family members, except in the case of the “super rich”. It is important when dealing with an inheritance in Spain that you seek the appropriate legal counsel, who is aware of these and other benefits, and who knows how to apply them in both the resident and non-resident field.
Gabriella Mary Trussler Rowland
4408 Ilustre Colegio de Abogados de Almería