How inheritance tax in Spain affects U.S. citizens residing in Spain with heirs in the U.S?
For U.S. citizens residing in Spain, estate planning is an essential aspect of financial security. One of the key considerations is the application of inheritance tax in Spain. The inheritance and gift tax, Impuesto de Sucesiones y Donaciones (ISD), applied to residents of Spain and also to heirs, regardless of their country of residence.
Therefore, if you are a U.S. citizen living in Spain and your heirs are based in the U.S., understanding inheritance tax in Spain is crucial.
How Does Inheritance Tax in Spain Work?
Spain’s inheritance tax is applied at the regional level, meaning the exact tax burden depends on where the deceased was a resident at the time of death. However, some general rules apply:
- Worldwide assets are taxed: As a tax resident of Spain, your worldwide assets (including those in the U.S.) could be subject to Spanish inheritance tax.
- Progressive tax rates: The tax rate varies depending on the relationship between the deceased and the heir, as well as the value of the inheritance. Rates range from 7.65% to 34%, but regional allowances can significantly reduce the burden.
- Allowances and deductions: Inheritance tax in Spain for expats includes some tax exemptions and reductions based on the heir’s relationship with the deceased. However, non-EU residents (such as U.S. heirs) may not always qualify for the same favorable treatment as EU residents.
Key Considerations for U.S. Heirs
- Taxation in Spain vs. the U.S.
- Heirs are responsible for paying the inheritance tax before receiving the assets.
- The U.S. does not impose an inheritance tax on beneficiaries, but estate tax applies to estates exceeding $13.61 million (for 2024).
- The U.S.-Spain tax treaty does not cover inheritance tax, meaning double taxation could be a risk. However, the U.S. allows a foreign tax credit, which may reduce the impact.
- Regional Differences in Spain
- Spain’s 17 autonomous regions set their own inheritance tax allowances. In some areas, close family members (spouses, children) receive significant tax benefits, but these often apply only to EU/EEA residents.
- If your heirs live in the U.S., they may not be eligible for these regional tax benefits, potentially leading to a higher tax burden.
- Payment and Compliance
- Inheritance tax in Spain is due within six months of death, but an extension may be requested.
- If your heirs do not voluntarily declare and pay the tax, Spanish authorities may place liens on Spanish assets to recover the amount due.
