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Inheritance Law in Madrid: Deductions and Exemptions for Residents and Non-Residents

This presentation provides an overview of inheritance laws in Madrid, including information on deductions and exemptions available to both residents and non-residents. It also covers personal exemptions, deductions for common-law couples, and specific deductions for disabilities, life insurance policies, family businesses, and family homes. Tax rates and calculations based on existing wealth are also discussed.

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Inheritance Law in Madrid: Deductions and Exemptions for Residents and Non-Residents

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  1. Inheritance Law in Madrid Last modified: 28th July 2019 This presentation has been updated and is valid for 2019.* • *Advocate Abroad does not accept responsibility for losses of any type consequent upon reliance on the information contained in this presentation. Please consult a lawyer before acting. 2

  2. Inheritance Law in Madrid In 2001 the Spanish governmentdevolved the power to set inheritance tax rates and deductions to the regional parliaments. 3

  3. Inheritance Law in Madrid Most regions enacted tax laws that applied generous deductions only to those beneficiaries who were resident in the region over the balance of the previous five years. 4

  4. Inheritance Law in Madrid On September 3rd 2014, the European Court of Justice ruled that such laws were discriminatory and contrary to European Law. 5

  5. Inheritance Law in Madrid Accordingly, the Spanish government has enacted new legislation (Ley 26/2014) which makes any deductions that may be applied to residents also available to non-residents who are EU citizens. 6

  6. Inheritance Law in Madrid The main impact of the new legislation is as follows: If the deceased who had assets in Spain was a non-resident, living in another European country, then the beneficiary may apply those deductions and exemptions provided by the regional government in which the majority of the inherited assets are located. 7

  7. Inheritance Law in Madrid 2) If none of the assets to be inherited are located in Spain, then the resident beneficiaries should apply the legislation enacted by the regional government where they are normally resident. 8

  8. Inheritance Law in Madrid 3) If the deceased was resident in one of the Spanish regions and the beneficiaries were non-resident, and living in another European Union country, then they may apply those deductions and exemptions available to residents of the region in which the deceased was resident. 9

  9. Inheritance Tax Law in the Madrid The regional level deductions available in Madrid were enacted by the parliament in Madrid and in their current form are specified in Legislative Decree 1/2010. The most important changes to State laws can be summarised as follows: 10

  10. Personal Exemptions Spanish Inheritance law first assigns beneficiaries to groups according to the degree of kinship with the deceased: Group I Children, including adopted children, under the age of 21 Group II All other descendants, spouses and parents Group III Close relatives such as brothers and sisters, grandparents, aunts and uncles Group IV More distant relatives 11

  11. Equal deductions for Common Law Couples Those deductions available to married couples are also available to those who are unmarried and who comply with the regulations set out in Ley 11/2001, 12

  12. Personal Exemptions These are the personal deductions as amended by regional law in Madrid. They are in addition to state exemptions: 13

  13. If the beneficiary has a disability: If the disability is classified as > 33% then a deduction of €55,000 may be applied in addition to other deductions • If the disability is classified as > 65% then a deduction of €153,000 may be applied in addition to other deductions 14

  14. Income Derived from Life Insurance Policies A 100% deduction on any life insurance policy worth up to €9,200 where the beneficiary is the: • Spouse, • Child/Adopted Child, or • Parent 15

  15. Deductions in transfer of Family Business • Tax deduction of 95% of the value of the business • Should be a sole trader or 'single director company‘ • The business must be maintained for at least 5 years following the inheritance 16

  16. Inheritance of the Family Home If the main, habitual family home is inherited there is a deduction of 95% up to the value of €123,000 per beneficiary. This applies to beneficiaries that are the spouse, child or parent of the deceased. 17

  17. Inheritance of the Family Home cntd The property may not be sold for a further 5 years after the inheritance. Other blood relatives over the age of 65 may also benefit if living with the deceased in the property for a period of at least two years prior to the date of death. 18

  18. Inheritance of Special Awards • For inheritance of special indemnities paid to victims of toxic shock syndrome or victims of terrorism those awards may be reduced by 99% • The reduction applies where such indemnities are not subject to Income Tax 19

  19. Other Deductions: As a general rule the following deductions may be made on any estate: • Funeral Expenses • Final Medical Expenses of the Deceased • Debts held be the deceased that are evidenced by public documents e.g. a mortgage 20

  20. Tax Rates in Madrid 21

  21. Tax Rates in Madrid Cntd 22

  22. Existing Wealth Once the relevant tax rate has been applied the result is multiplied by a coefficient determined by the existing wealth of the beneficiary as well as the group to which they belong: 23

  23. Existing Wealth The Groups referred to consist of the following beneficiaries: Group I Children, including adopted children, under the age of 21 Group II All other descendants, spouses and parents Group III Close relatives such as brothers and sisters, grandparents, aunts and uncles Group IV More distant relatives 24

  24. Special Rebate: Spouse, descendants and parents A special rebate of 99% on any tax payable on account of any inheritance tax that is payable after application of the previously mentioned rules to those beneficiaries in Groups I or II. 25

  25. Special Rebate: Group III • A special rebate of 15% shall be applicable to any inheritance tax resulting payable by brothers or sisters of the deceased after the above mentioned rules applied • A similar rebate of 10% is applicable to aunts or uncles 26

  26. Each year in Spain thousands of expats pay more tax on inheritance than they should – simply because they fail to follow some simple rules. 27

  27. Expert Probate Services in Madrid To find out how to get expert advice, in English, about how to reduce your liability for inheritance tax, go to: Expert Probate Lawyers in Madrid 28

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