Inheritance and Gift Tax (Impuesto sobre Sucesiones y Donaciones – ISD)

The Inheritance and Gift Tax (ISD) is a crucial consideration for foreign retirees residing in Spain or owning assets there. Unlike in some countries (like the UK before recent changes), this tax is levied on the recipient (beneficiary/heir), not the deceased’s estate (causante/donor).

The tax is regulated at the national (state) level, but significant taxing and regulatory powers have been devolved to Spain’s Autonomous Communities (CC. AA.). This decentralization means the tax burden can vary dramatically depending on the region and the residency status of the people involved.

📝 Core elements of Spain’s Inheritance and Gift Tax (ISD):

• Taxable Event (Hecho Imponible):
  • Acquisition of assets/rights by inheritance (mortis causa).
  • Acquisition of assets/rights by donation (inter vivos, gratuitous transfer).
  • Receipt of amounts by beneficiaries of life insurance when the policyholder is different from the beneficiary.
• Obliged to Pay (Contribuyentes):
  • In inheritances (“mortis causa”), the heirs/legatees (causahabientes).
  • In gifts (“inter vivos”), the donee (donatario) or favoured party.
  • In life insurance, the beneficiaries.
• Tax Obligation:
  • Personal Obligation (Obligación Personal): Applies to individuals habitually resident in Spain. They are taxed on worldwide assets/rights received.
  • Real Obligation (Obligación Real): Applies to non-residents. They are only taxed on assets/rights situated, exercisable, or to be fulfilled in Spanish territory, and life insurance policies with Spanish entities or foreign entities operating in Spain.
• Tax Base (Base Imponible):
  • For inheritances and gifts: The net value of the acquired assets/rights (value of assets/rights minus deductible charges and debts).
  • For life insurance: The amounts received by the beneficiary. These amounts are often accumulated with the rest of the inheritance portion if the deceased was the policyholder.
• Deductible Charges and Debts: Used to calculate the net value.
• Taxable Base and Rates (Base Liquidable y Tipos): If the Autonomous Community hasn’t approved its own scale, or if its rules don’t apply, the national progressive scale is used (ranging from 7.65% to 34.00%).
• Tax Due (Cuota Tributaria): Calculated by multiplying the tax resulting from the progressive rates (Cuota Íntegra) by a multiplier coefficient. This coefficient is based on the heir/donee’s pre-existing wealth (Patrimonio Preexistente) and their degree of kinship (Group) to the deceased/donor.
• International Double Taxation Deduction (Deducción por doble imposición internacional): For Spanish residents (Personal Obligation), they can deduct the lesser of:
  • The tax effectively paid in the foreign country for a similar tax.
  • The result of applying the Spanish average effective tax rate to the portion of the asset situated outside Spain that was taxed abroad.
• Jurisdiction (Delimitación de Competencias):
  • Generally, the State has jurisdiction for non-residents.
  • For residents, jurisdiction is typically transferred to the Autonomous Communities (CC. AA.).

🔑 Key Takeaways for Foreign Retirees in 2025

The most important aspect of the ISD for foreign retirees in Spain is the difference between the National Law and the Regional (Autonomous Community) Laws. The application of the most beneficial rules depends heavily on residency status.

Residency and Applicable Law

• Crucial Rule: Due to European Court of Justice (ECJ) rulings, non-residents (EU/EEA or not) can now generally choose between the National Law and the Regional Law that would have applied had they been residents (e.g., the CC. AA. where the deceased resided or where the property is located).
• Impact: This option is vital because many CC. AA. (like Madrid, Andalusia, Murcia, and the Canary Islands) offer generous exemptions and reductions (often up to 99% or even 100% for close family members – Groups I & II) that dramatically lower the effective tax rate compared to the national law.

The Progressive National Rate Scale

If the most favourable Autonomous Community rules cannot be applied or are not chosen, the National (State) Law applies. This system uses a highly progressive rate scale, which is then adjusted by a multiplier based on kinship and pre-existing wealth.

A. National Progressive Tax Rate (Cuota Íntegra)

This is the progressive tax rate on the Taxable Base (Base Liquidable):

B. Multiplier Coefficient (Based on Kinship and Pre-Existing Wealth)

This coefficient is applied to the result of the progressive tax rate (Cuota Íntegra) to determine the final tax due (Cuota Tributaria). The kinship groups (Grupos del artículo 20) are:

• Group I: Descendants and adopted children under 21 years old.
• Group II: Descendants and adopted children over 21, spouses, ascendants, and adoptive parents.
• Group III: Relatives in the second and third degree (siblings, nephews/nieces, uncles/aunts).
• Group IV: Other relatives and non-relatives.

• Note: The coefficients for Groups III and IV can make the final tax very high, particularly for non-relatives (Group IV), where the tax can be multiplied by up to 2.4 times.

Regional Reliefs (2025)

The most significant planning opportunity for foreign retirees comes from the Autonomous Communities’ tax reliefs for close family (Groups I and II):

• Andalusia, Madrid, Murcia, Canary Islands, Balearic Islands, and Valencia (for close family): Offer near-total relief (typically 99% to 100% tax reduction) on inheritances and often on gifts for spouses, parents, and children (Groups I and II).
• General Allowances: The State law provides personal tax-free allowances (€15,957 for Groups I & II), but regional reliefs are often far more generous (e.g., Andalusia’s €1,000,000 exemption).

Example: A Child Inherits €300,000 from a Parent

For foreign retirees, ensuring their beneficiaries can apply the rules of an Autonomous Community with high tax relief, rather than the more punitive State law, is paramount. This is primarily why tax planning and the correct declaration of residency are crucial.

Summary of Inheritance Tax Regulations by Region (2025)

Self-Assessment Form

You must submit a different Self-Assessment Form depending on the transaction:

The International Double Taxation Deduction

For retirees who are Spanish residents and inherit worldwide assets (meaning they are subject to Personal Obligation), this deduction is essential. If a similar tax has been paid in another country on the same assets (e.g., an asset in the retiree’s home country), the Spanish tax can be reduced. However, this deduction is only available to Spanish residents.

In summary, while the National ISD law sets a high progressive rate structure, the generous tax reliefs enacted by many Autonomous Communities effectively reduce or eliminate the tax for close family members. The key for foreign retirees is structuring their affairs and establishing residency correctly so their beneficiaries can apply these beneficial regional laws, whether the beneficiary is resident or non-resident in Spain.

Filing Obligation for Non-Residents 👤

This section provides information on the Inheritance and Gift Tax in cases that are not transferred to the Autonomous Communities, as they affect individuals who are not residents in Spanish territory.

• In cases where a natural person not resident in Spain receives an inheritance or a donation, they must self-assess this Tax with the Spanish Tax Agency (AEAT).
• Spanish Residents must also file a self-assessment with the AEAT when:
  • The deceased was a non-resident, OR
  • A property located abroad is received as a donation.
• Management: Within the Tax Agency, the management is entrusted to the National Tax Management Office (Oficina Nacional de Gestión Tributaria).

Form 650: Acquisitions Due to Death 🕯️

Form 651: “Inter Vivos” Acquisitions (Donations) 🤝

Double Taxation and Regional Regulations ⚖️

Double Taxation Agreements (DTA): Spain has only signed three agreements to avoid double taxation regarding the Inheritance Tax: France, Greece, and Sweden.

• Supreme Court Ruling on Non-EU Residents:
  • In response to various appeals filed by taxpayers resident in countries outside the EEA, the Supreme Court ruled that discrimination against non-EU nationals violates EU law regarding the free movement of capital.
  • Therefore, all non-residents, regardless of the country of residence (EU or non-EU), have the right to apply the regional regulations (Autonomous Communities’ rules) in the Inheritance and Donations Tax.