Andalucia considered the new inheritance tax haven in Spain

The new political change in Andalucía has brought along a huge tax reform regarding inheritance tax, which was long overdue. This new reform reduces considerably the IHT (ISD in Spain) not only exempting those inheritances with an estate value under 1.000.000 euros, but will also apply a 99% reduction for those that exceed this amount.

The run for this reform started off with the previous governing party amending article 22 of the Legislative Decree 1/2018, of 19th June, which implemented a reduction of 1.000.000 euros to those inheritances, within this threshold (from 0 to 1.000.000 euros), in favor of the so-called Groups I and II, meaning that inheritances under these circumstances were not taxable.

Who are included in Groups I and II?

1. Descendants: biological/adopted children and grandchildren.
2. Ascendants: biological/adoptive parents and grandparents.
3. Spouses and registered civil partners.

The newest reform has taken another step ahead by amending article 33 bis of the said Legislative Decree and has established a reduction of 99% for those inheritances and gifts, still in favor of Groups I and II, that exceed the threshold of 1.000.000 euros.

This new inheritance regulation in Andalucía will only be applied to inheritances with an estate sited within the Andalusia Region and shall unfortunately not apply to inheritances outside Andalucía, nor when the beneficiaries are other family members (siblings, uncles/aunts, nieces, nephews) and friends, whose taxation shall be governed by the general inheritance rules.

The requirements for the reduction to be applicable are as follows:

1. To be a European citizen
2. The assets that compose the inheritance must be sited in the Andalucia Region.
3. To be an heir within the so-called Groups I and II.

It is important to keep in mind that this new regulation was enacted on the 9^th April 2019 and, given that it does not have a retroactive effect, it shall only be applied to those estates where the testator has passed away after the entry into force of this amendment.

As an example: Michael, a European Citizen, owns a few properties in La Costa del Sol and passes away. Before passing away he grants a Spanish will for his assets sited in Spanish Territory where he appoints his wife Penelope as his sole heir. The net worth of his estate amounts to 1.500.000 euros.

In the scenario where Michael passes away after the 9^th April 2019: Given that Penelope complies with the above requirements, inheritance tax up till 1.000.000 euros will be exempted, meaning that for this amount she will not pay any inheritance tax. As for the remaining 500.000 euros a reduction of 99% shall apply.

In the case scenario where Michael passes away between the 1^st January 2018 and the 8^th April 2019: The exemption of 1.000.000 euros shall apply and the rest of the estate would be governed by general inheritance taxation rules.

In the scenario where Michel passes away before the 1^st January 2018 Penelope would be liable to pay tax in compliance of general inheritance tax rules.

Do you have any questions about inheritance law in Spain? If you are seeking legal advice regarding any issue with your will, inheritance or any other issue related to a Spanish Property, please contact our collaborators GVA lawyers for personal advice at marbella@gva-atencia.es.