As of January 1st 2018, significant changes to the inheritance tax allowance in Andalucia, came into effect. These changes affect both expats who reside in the region, and non-residents who own assets such as holiday homes here.
The generous move by the regional Government of Andalucia raises the inheritance tax allowance to 1 million euros, where the heirs receiving the assets of a deceased direct family member, are classified as falling into Kinships Groups I and II, i.e. spouses, children, grandchildren and parents. For this group of beneficiaries, there will be no inheritance tax (Impuesto sobre Sucesiones y Donaciones), when the sum of the assets received does not exceed this new 1 million threshold.
This change which is essentially politically driven – the Cuidanos party giving its support to the PSOE socialist party in return for certain compromises to their agenda, (i.e. in this case making Inheritance law less punitive) is about bringing Andalucia into line with other regions of Spain such as Madrid and Valencia, where no inheritance tax is paid.
What it means in reality is that 95% of principal inheritors will pay no death duties. This has considerable ramifications for ex-pats who are resident in Spain and who have assets that they are leaving to spouse, children, grandchildren or parents who do not reside in Spain, as these assets would previously have subject to steep taxes. In the previous regime, spouses receiving their deceased partners share of a marital home would often be landed with a hefty inheritance tax bill, often forcing them to sell the home they are living in on top of their bereavement.
It’s worth noting that prior to this change in Andalucia,and one that came a year before it, the non taxable inheritance tax allowance was only 123,000 Euros, with everything above that taxed.
The tax changes tax still exclude what are known as Groups III and IV. That is, both brothers, sisters and nephews/neices, uncles and cousins , who will continue to pay the same as before.
The law governing inheritance, (sucesiones) also covers gifts, (donaciones), and the change increasing the allowance in Andalucia also extends to gifts, albeit with conditions attached as to how the gift is made and its purpose. For example, for gifts between direct relatives (parents and children), provided that the full amount is intended for the establishment or expansion of an individual company or family business, the ceiling of €1m may be applied.
At the same time, the Junta de Andalucia, is also enacting a 99% exemption on donations of money from parents to their children or descendants, that is entirely destined for the purchase of their first habitual residence, as long as the donee is under 35 or has a disability.
The changes will not be retroactive nor will it affect the settlements that are already being processed and that were submitted prior to January 1 2018.
All in all, this is good news for the majority of British expats and holiday home owners in Andalucia, as it means that unless you have assets in Spain that total more than 1 million euros, you can plan to leave your estate in Spain to immediate family without having to worry about them having to pay death duties in Spain.
Related article: The Importance of a Spanish Will