International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Inheritance agreements under Spanish inheritance tax: Worth anticipating the taxable event?

Sponsored by


Within the law of succession there are mainly two different systems for the devolution of the estate.

On the one hand, civil law countries usually follow the direct accrual of the estate system whereby legal successors acquire the estate directly from the decedent either immediately upon death or upon their acceptance. On the other hand, common law countries generally follow the indirect devolution of the inheritance through an intermediary system whereby the estate is transferred to the personal representative, executor or administrator whose duty is to ascertain the estate, pay the deceased's debts, administer the estate and then distribute the surplus among the persons entitled to the estate by will or the rules of intestate succession.

This difference between private law systems explains why in some countries, generally civil law countries, the taxpayer under an inheritance is the heir whereas in other countries, normally common law countries, the taxpayer is not the heir but the intermediary, who pays taxes before passing on the estate. Spain, as a civil law country, follows the direct accrual upon acceptance system and therefore the heir is liable to tax under inheritance tax rules.

In general terms, a non-tax resident is only liable to inheritance tax in Spain in so far as he/she receives Spanish-sourced assets, regardless of the tax residency of the deceased. Further complexity in Spain derives from the fact that each of the 17 regions has powers to enact its own inheritance tax laws. For this purpose, the Spanish legislator has established complicated connecting factor rules for the purpose of determining the regional applicable law both for purely domestic and cross-border inheritances.

In past years, there has been competition among Spanish regions, which has resulted in a race to the bottom. More than half of the regions in Spain (Madrid, Catalonia, Balearic Islands, Canary Islands, Valencia, Murcia, Cantabria, Castilla-La Mancha, Extremadura, Galicia, la Rioja, Ceuta and Melilla) have introduced tax breaks for inheritance and gift tax, some of them even up to 99.9%.

Although the European Court of Justice has decided against the discrimination between non-tax residents and tax residents under inheritance and gift tax in Spain, the prevailing situation still discriminates among tax residents depending on the above-mentioned connecting factors and regional tax laws. In the existing political environment, there is a possibility that a minimum effective taxation could be imposed in all regions.

Foreign holders of Spanish-based assets could cautiously think about transferring their assets in order to enjoy the existing rules. However, in most regions, tax breaks are only available for inheritances and not for gifts, which may imply considerable taxation for the donee. Furthermore, the donor may also be liable to tax on the capital gain accrued under personal income tax. Such capital gain would not be taxable if the transfer was characterised as mortis causa.

There is however another way. Under Spanish private law some regions have their own succession laws, whose origins are older than the era of codification, and which allow inheritance agreements. Under these contracts, it is possible to transfer a part of the estate during the life of the testator, and such transfer according to the Spanish tax administration would qualify as a mortis causa transfer.

According to EU Regulation 650/2012, a foreigner habitually resident in Spain may enter into an inheritance contract either when he/she is habitually resident in a Spanish region which foresees these contracts (e.g. Catalonia, Balearic islands, Aragon, Galicia, and so on) or, regardless of his/her region of residence, because the relevant national law does (possibly Erbverzichtsvertrag under German and Swiss law). The same would of course apply in relation to Spanish assets if he/she were not resident in Spain and his/her country of residence allowed inheritance agreements. In the field of succession tax, substantive law is still king, and the way individuals have chosen to transfer their assets under private law will determine the taxable event and will thus be respected by the tax authorities.

more across site & bottom lb ros

More from across our site

Premier League football clubs are accused of avoiding paying up to £470 million in UK tax, while Malta is poised to overhaul its unique corporate tax system.
Bartosz Doroszuk of MDDP offers insights on Poland’s new tax legislation on shifted profits, as the implementation deadline looms nearer.
Four tax specialists preview the UK’s transfer pricing requirements, which come into effect on April 1.
The rise of the QDMTT will likely change how countries compete on tax and transfer pricing policy, but it may not reverse decades of falling corporate tax rates.
ITR’s latest quarterly PDF is going live today, leading on the EU’s BEFIT initiative and wider tax reforms in the bloc.
COVID-19 and an overworked HMRC may have created the ‘perfect storm’ for reduced prosecutions, according to tax professionals.
Participants in the consultation on the UN secretary-general’s report into international tax cooperation are divided – some believe UN-led structures are the way forward, while others want to improve existing ones. Ralph Cunningham reports.
The German government unveils plans to implement pillar two, while EY is reportedly still divided over ‘Project Everest’.
With the M&A market booming, ITR has partnered with correspondents from firms around the globe to provide a guide to the deal structures being employed and tax authorities' responses.
Xing Hu, partner at Hui Ye Law Firm in Shanghai, looks at the implications of the US Uyghur Forced Labor Protection Act for TP comparability analysis of China.