The Spanish Inheritance and Gift Tax (Ley 29/1987)
is the responsibility of the Spanish regional governments (Comunidades Autónomas).
According to this law, who is resident in Spain (183 days rule) is liable for this Tax for all the assets inherited, regardless of where they are located.
- Coordination between Spanish and UK taxation Law
The Spanish tax liability is also independent of whether the same acquisition is subject to Inheritance and Gift Tax in another country at the same time.
For example, if a Spain resident taxpayer inherits a real estate in England, the acquisition is subject to the Spanish but also to the UK Inheritance Tax. One could end up paying taxes in both countries.
The Spanish income tax is regulated according to Law 35/2006 (Income Tax Law LIRPF) and Regulation RDR439/2000 (Income Tax Regulation RIRPF)
It is a dual taxation system as it applies to two different types of income, each having its own tax rates:
- The general tax base, which is taxed progressively
The Law on Spanish Wealth Tax dates from 1991 (Ley 19/1991). The tax rates have not changed since then. While in 1991 the interest rate in Spain was about 10 to 15 per cent, they are now at 1 per cent. If someone in 1991 had to pay 1.7% for wealth taxes, this was acceptable, as these assets were far more profitable than they are today. Thus the actual impact of Wealth Tax has increased significantly as a result.
From 2008 to 2010, the Wealth Tax was abolished, but was reintroduced again in 2012 and 2013 due to the Spanish crisis situation and was afterwards extended to the assessment periods 2014 and 2015. In 2016, this tax is theoretically to be abolished again (RDL 13/2011). But the political panorama in Spain today allows no long-term predictions and reintroduction of this Tax by Royal Decree-Law is not improbable.
The real estate transfer tax in the Balearic Islands has a variable rate, from 8% to 10%. Amongst Spanish regions the maximum tax bracket vary between 6% to 11%.
Up to 400.000 Euros the tax rate is 8%. From 400.000,01 to 600.000 Euros it is 9%. From 600.000,01 Euros onwards the rate of 10% is applied.
Detached parking spaces, which are not connected to the apartment, are taxed with 8% but this only up to a value of 30.000 Euros. What exceeds this amount is taxed with 9%. Attached parking places are admitted in the unique tax base till 2 units per apartment.
The tax rate is applied to the total value of the property and not individually on the parts of it. This is the case if more than one individual purchases the property.
A couple jointly buys a house in Mallorca, therefore each acquires the same part (50% – 50%). The purchase price is 1.000.000 Euros. The tax base would theoretically be 500.000 Euros for each of them, but it is not. The calculation of the 3 tax brackets is applied on the total value of 1.000.000 Euros.
The real estate transfer tax that would be payable for each individual in the Balearics would be as follows:
For the first 200.000 Euros the tax rate to be applied is 8%. The next 100.000 Euros are taxed at 9%, and the remaining 200.000 Euros with 10%. (€16.000 + €9.000 + €20.000 = € 45.000 payable by each spouse).
Payment is due within 30 days after the signing of the notarial deed.
In the following, we present the main tax changes you must consider if you have already invested in Spain or if you’re thinking about investing or to do business in this country.
1. As a result of the recent judgment of the European Court of Justice (judgment of 09.03.2014), with which the unequal tax treatment of tax residents and non-tax residents was declared illegal, the tax on the inheritance of property in Mallorca between relatives amounts to 1%.