One of the most common sources of confusion regarding the Inheritance and Gift Tax (ISD) is how the residence of the beneficiary, the residence of the deceased, and the location of the inherited assets affect taxation.
The first point to determine is the tax residency of the beneficiary at the time of succession:
- If the beneficiary is a tax resident in Spain, they must include in their ISD return the entire value of the inherited assets assigned to them (regardless of whether they are located in Spain or abroad), as they are taxed under the “personal liability” regime.
- If the beneficiary is not a tax resident in Spain, they are only subject to tax on the inherited assets located in Spain, which falls under the “real liability” regime. In this case, the beneficiary should obtain a tax residency certificate from their country of residence to prove they are not a tax resident in Spain. Additionally, they must appoint a representative who is a tax resident in Spain to file the ISD return (a simple authorisation form is available on the Spanish Tax Agency’s website).
It’s important to note that taxpayers under the Beckham Law Regime are considered tax residents in Spain for all purposes related to ISD, unlike other taxes such as Personal Income Tax (IRPF) or Wealth Tax (IP), where they are treated as non-residents.
Another key issue is administrative jurisdiction, i.e., which Tax Authority is competent to receive the ISD filing:
- The ISD must be filed with the regional tax authority of the deceased’s place of residence, only if both the deceased and the beneficiary were tax residents in Spain.
- Otherwise (if either the deceased or both were not tax residents in Spain), the filing must be made before the Spanish Tax Authorities (AEAT).
As for the applicable legislation, filing before a regional or national tax authority does not automatically determine whether regional or national ISD regulations apply. Instead:
- If both the deceased and the beneficiary were tax residents in Spain, the regional legislation of the deceased’s place of residence applies.
- If the deceased was a tax resident in Spain but the beneficiary is not, either the state or regional legislation (whichever is more favourable) may be applied, using the region where the deceased resided.
- If the deceased was not a tax resident in Spain, either the state legislation or that of the region where most of the Spanish assets are located may be applied — again, whichever is more favourable.
| As a summary: | |||
|---|---|---|---|
| Deceased | Beneficiary (Taxpayer) | Jurisdiction | Applicable regulations |
| Resident | Resident | The region of residence of the deceased | The region of residence of the deceased |
| Non-resident | State (National Tax Authority) | Option: a) State rules b) Region of residence of the deceased |
|
| Non-resident | Resident | State (National Tax Authority) | Option: a) State rules b) Region with the highest value of assets located in Spain; if no assets, the region of the beneficiary’s residence |
| Non-resident | State (National Tax Authority) | Option: a) State rules b) Region with the highest value of assets located in Spain |
|
Until a few years ago, non-residents were not allowed to apply regional legislation, but the Courts ruled that this limitation was unjustifiably discriminatory. Today, non-residents may also apply the most favourable regional legislation.
This is particularly relevant because there are substantial differences between regulations, especially regarding allowances, tax reliefs, and tax multipliers, both among the different autonomous regions and compared to the national legislation (which is usually more burdensome, as it sets the minimum standard for all of Spain).
Finally, another crucial point in cross-border inheritance cases is the matter of tax prescription periods. Special care is needed if the ISD must be filed (under personal or real liability) for an inheritance formalized before a notary abroad: in such cases, the tax authority’s period to review or amend the tax return is not 4 years and 6 months from the date of death, but 4 years from the moment the inheritance document is submitted to any Spanish authority. This may considerably extend the prescription period beyond the standard timeframe.
These are the most relevant aspects of international inheritance cases, though there may be others to consider. If you’d like to discuss your specific situation, feel free to contact me, and we can go over it together.