The British taxpayer has recently received significant widening of Inheritance Tax exemptions and it can come as a shock for British citizens with property in Spain to discover that the Spanish approach to taxing gifts and inheritances is very different. 

First, in Britain, provided you have made a valid Will, there is complete freedom in how you dispose of your assets after your death.  Here in Spain immediate family members receive priority in the division of your estate and pay tax on their inheritance at a lower rate than more remote relatives or those who are unrelated to you.  This can be devastating for unmarried couples where the deceased did not leave a Will.

Second, inheritance tax in Britain is a tax on the estate and is paid by your estate at a flat average rate. In Spain the tax is paid by the individual beneficiaries.  The tax due depends on the amount or value of the gift that they receive, and their relationship to you.

Third, in Britain, Inheritance tax is charged at the same rate across the entire country.  In Spain the autonomous communities can regulate their own exemptions.  In the Valencian Community tax on gifts and inheritance is regulated by law 13/1997, as amended.

Under the Spanish Civil Code (Art.9 para 8) the distribution of property on death is dealt with in accordance with the national law of the deceased.   So British people have the right to dispose of their Spanish assets in accordance with British Law and leave their assets to whoever they wish.  Foreigners of other nationalities will be governed by their own national law.  A Spanish Will made by a foreigner should always state their nationality, NIE number, and passport number so there can be no doubt which national law should be applied to the distribution of their estate.  It is not necessary for the Will to specify which law is to apply.

However, the gift will be subject to Spanish Gift Tax, including gifts to spouses, and the beneficiaries will only be able to take advantage of the Spanish exemptions which are less generous than those in Britain.  For example, a Spouse or British Civil Partner, or child of the deceased enjoys an exemption of €40,000 from inheritance tax and in the case of children under 21, an additional €8,000 for each year under that age subject to a maximum exemption of €96,000. In the Valencian community there are additional allowances for spouses.  Brothers and sisters, more distant relatives, and unrelated persons have lower allowances and pay tax at higher rates.

Inheritance tax is charged progressively, in bands in a similar way to tax on income, and the calculation of tax due may differ between beneficiaries.

Every case is different, but the best general advice for all foreigners with property in Spain is to take expert advice on the disposal of their estate and make a Spanish Will.