Tax considerations when receiving an inheritance from abroad while residing in Spain: taxes and possible deductions

It is crucial to have the advice of lawyers specialized in the taxation of international inheritances.

The tax consequences in Spain for receiving an inheritance abroad will depend on where the heir lives. In accordance with Law 29/1987, of December 18, on the Tax on Inheritance Donations (hereinafter “LISD”), there are two types of obligation to which taxpayers of the tax are subject: personal obligation, which is what this article will discuss, and real obligation.

Article 6 LISD states that Taxpayers who have their habitual residence in Spain will be required to pay inheritance tax due to “personal obligation”, regardless of where the assets or rights received by inheritance are located. That is, in the event that a tax resident in Spain receives an inheritance abroad, he or she will have the obligation to present and pay the inheritance tax for the mere fact of being a tax resident in Spain on the date of death of the deceased, and for Therefore, you must pay the tax on everything you receive by inheritance in the rest of the world.

Now, This rule has exceptions that could occur in the event that there is an International Agreement (CDI) on inheritance matters between Spain and the country from which the inheritance comes.. Currently, Spain has signed only three Agreements to avoid double taxation regarding Inheritance Tax with France, Greece and Sweden. We are only talking about inheritances, not donations.

In this sense, it will be necessary to see what type of goods or rights you receive and what the Convention says to determine which jurisdiction is competent to record them. As an example, if a French national, resident in Spain, receives property by inheritance located in France from his father who died in that country, he does not have to pay inheritance tax in Spain, because the Double Taxation Agreement with France establishes that real estate (including accessories) is only subject to inheritance tax in the country where they are located. That is, in this case you will pay taxes only in France.

As can be seen, first of all, it is very necessary to first determine the tax residence of the heir and subsequently check if there is a CDI that avoids double taxation in terms of inheritance tax. Otherwise, it will be necessary to resort to the Spanish internal regulations. In this way, article 23 LISD establishes that when subjection to the tax occurs due to personal obligation (tax resident heir in Spain), the taxpayer may deduct the smaller of the following two quantities:

El effective amount of what was paid abroad due to a similar tax that affects the increase in assets subject to tax in Spain.

El result of applying the average effective rate of this tax to the capital increase corresponding to assets that are located or rights that can be exercised outside Spain, when they have been subject to tax abroad for a similar tax.

Let's take, for example, an Italian national residing in Spain who receives the inheritance from his parents, who reside in Italy.

In this case, given that there is no CDI in succession matters between Italy and Spain, we have to apply Spanish law because the heir is resident in Spain. In this case, the Italian national is a tax resident in Spain and, therefore, is subject to personal obligation to the payment of ISD. The tax base will be determined taking into account all the assets and rights received by inheritance, subtracting the charges and debts that were deductible, and the tax paid in Italy may be deducted from the resulting amount within the limits established by law.

Finally, we must keep in mind that, in addition to the Inheritance Tax, the situation could arise that the heir, upon acceptance of the inheritance, will have to comply with the obligation to present Form 720 regarding the informative declaration on assets and rights in abroad, provided that it exceeds the minimum limits required for such obligation.

Having said the above, it is crucial to have the advice of lawyers specialized in the taxation of international inheritances. These professionals can analyze the case, determine the relevant regulations and prepare the necessary documentation to file and manage the corresponding taxes.

Dimitrichka Nedelcheva Anghelova,

Legal Tax Lawyer. AGM Lawyers