The Inheritance and Gift Tax (ISD) is a direct tax, levied at the national level but ceded to the Autonomous Communities, which taxes increase in net worth obtained free of charge by individuals. It primarily covers inheritances and gifts.

General framework of the tax in Spain

It is a direct and subjective tax that levies the acquisition of assets and rights through inheritance, gift, or other gratuitous legal transactions (taxable event). It is a national tax, although the regulations governing it (rates, reductions, and allowances) largely depend on the relevant Autonomous Community.

Therefore, in addition to the national regulations (Law 29/1987, on Inheritance and Gift Tax, and the ISD Regulations – Royal Decree 1629/1991), there are specific regulations for each of the Autonomous Communities.

1. Inheritance Tax (Inheritance)

This tax is levied when a person acquires assets and rights due to the death of another (inheritance or legacy). The heirs or legatees are taxed individually on their share, and the taxable base is the net value of the inherited assets and rights, that is, the actual value of the inherited assets less any charges, debts, and deductible expenses (for example, funeral expenses, expenses related to the deceased’s final illness, and debts of the deceased).

Certain reductions can be applied to the taxable base and depend, among other factors, on the degree of kinship (descendants, ascendants, spouse, collateral relatives), age (especially for those under 21), disability of the heir, and the transfer of a family business or primary residence, provided certain requirements are met.

The amounts and conditions vary significantly depending on the Autonomous Community.

The tax liability is calculated based on the taxable base, to which a progressive tax rate and a multiplier coefficient are applied, depending on the heir’s pre-existing assets and their relationship to the deceased. Subsequently, regional tax credits may apply (very high in some autonomous communities).

The filing deadline is generally six months from the date of death, extendable for another six months if requested within the deadline.

2. Gift Tax

This tax is levied on the acquisition of assets or rights inter vivos, without consideration, through a gift or gratuitous legal transaction. The tax is paid by the donee (the recipient of the gift) and is calculated based on the actual value of the gifted asset or right, less any deductible expenses.

As with inheritance tax, there are regional reductions and tax credits, particularly relevant for gifts between parents and children, gifts intended for the purchase of a primary residence, and gifts of a business or company shares. In general, donations tend to receive less favorable tax treatment than inheritances, except in Autonomous Communities with significant tax breaks.

The filing deadline is usually 30 business days from the date the donation is made (this period may vary depending on the Autonomous Community).

3. Regional Jurisdiction

In the case of inheritances, the competent Autonomous Community is generally that of the deceased’s last habitual residence. For donations, if the property is real estate, it is the location of the property, and for movable property or money, it is the domicile of the donee (the recipient of the donation).

This is crucial, as differences between Autonomous Communities can result in very different amounts payable.

The key differences between inheritances and donations are that inheritance occurs upon death; The donations made during one’s lifetime have different self-assessment deadlines, the tax impact is generally more favorable for inheritances than for donations, and donations can also generate capital gains for the donor’s personal income tax (IRPF), which does not occur in the case of death.

4. Importance of Tax Planning

Proper estate and asset planning can result in significant tax savings, especially considering the applicable regional regulations at the time of the transfer, the type of assets transferred, and the personal and financial circumstances of the beneficiaries.

Therefore, it is advisable to analyze each specific case in advance and seek specialized advice from US Tax Consultants. Do not hesitate to contact us by phone at +34 915 194 392, by email at info@ustaxconsultans.es , or through a free consultation, which can be booked via the «Book a free appointment» link on our website.