How Is An Inheritance Received Abroad Taxed?

With globalization and the movements of people from one country to another, it is more and more frequent that there are people who die abroad or people in Spain who receive an inheritance abroad. This article will tell you how an inheritance received abroad is taxed, what taxes must be paid, and where.

Imagine the following case: a Spaniard emigrates to France, dies and leaves assets (a house or money in bank accounts, for example) to his children who are in Spain. Ignorance about what to do in these circumstances means that many heirs renounce the inheritance because they think that the procedures to receive it are very complicated.

What law applies to an inheritance received abroad?

This is one of the most frequent doubts that the heirs of an inheritance abroad have. They do not know if the law where the inheritance assets are located, the law of the place where the testator dies or the law of the country where the heirs are located applies.

In this sense, the Civil Code establishes the following in article 8.8:

8. Succession due to death will be governed by the deceased’s national law at the time of his death, whatever the nature of the assets and the country where they are located. However, the provisions made in a will and the succession agreements ordered by the national law of the testator or the disposer at the time of its execution will retain their validity even if the law that governs the succession is different, although the legitimate ones will be adjusted, in his case, to the latter. The rights that by operation of law are attributed to the surviving spouse will be governed by the same law that regulates the effects of marriage, always except for the legitimate ones of the descendants.

Until a few years ago, the law applicable to an inheritance abroad was the national law of the testator at the time of his death. In the example that we have given before, how it is about a Spaniard who dies in France, the Spanish inheritance law would apply since it is the law that corresponds to the nationality of the deceased.

Since 2015, the law of application in these cases (in the countries that are part of the European Union) has changed due to the approval of a European Regulation, according to which the law of the country of habitual residence of the testator in the moment of death. Therefore, in the example we have seen, the French law on inheritance would apply. In addition, the European Regulation establishes that the testator can regulate in the will that the law of his nationality is applied instead of the law of his country of residence, but, for this to be the case, it is necessary that it be expressly regulated in the will. On the other hand, if the deceased person has several nationalities, he may choose the law of the nationality that he prefers.

How is an inheritance received abroad taxed?

We must differentiate several assumptions to know how an inheritance received abroad is taxed:

• Heirs resident in Spain. In this case, when the assets are in Spain, and the deceased person had their habitual residence in a country of the European Union, the Spanish State Inheritance Tax is paid for all the assets of the inheritance, both those that are in Spain as those that are abroad, but the advantages of the autonomous community where most of the goods that are in Spain are located can be applied. If all assets are outside of Spain, the benefits of the autonomous community in which the heir resides apply.

It may happen that the heir resides in Spain, but the assets belong to a person whose habitual residence is outside the European Union. In this case, the Spanish State Inheritance Tax is also paid, for all the inheritance assets, both those that are in Spain and those that are abroad and the advantages of the autonomous community where the property is located can also be optionally applied. Most of the assets that are in Spain and if there are no assets in Spain, the advantages of the autonomous community of residence of the heir may apply.

• Heirs not resident in Spain. In this case, we are heirs who do not live in Spain who inherit assets that are in Spain from a person who has their habitual residence in the European Union. In these cases, you must pay the Spanish State Inheritance Tax only for the assets located in Spain or apply, optionally, the regulations of the autonomous community where the highest value of the assets located in Spain is found.

Another case is that of heirs who do not reside in Spain who inherit assets that are in Spain from a person who dies and has his habitual residence outside the European Union, for example, the United States. In this case, the inheritance tax that has to be paid is Spanish only for assets located in Spain, and it will be done through the state Tax Agency, but it will also be possible to choose to apply the tax advantages of an autonomous community if there is any point of connection between the assets of the inheritance and that community (the autonomous community where the highest value of the assets located in Spain are found).

Form 720 and inheritance

Along with all the above, we must consider that, in addition to the Inheritance Tax, in some instances and if the requirements are met, Form 720 must be submitted regarding the informative return on assets and rights abroad.

In this sense, the entities regulated in article 35.4 of the General Tax Law (recumbent inheritances or communities of property) have an obligation to present Form 720. The recumbent inheritance is a legal figure used to name the inheritance from the death of the deceased until the heritage is accepted.

As a consequence of the above, it is essential to have the help of expert lawyers in the taxation of international inheritances so that they study the case, establish the applicable regulations and prepare and present the taxes to be paid.