Spain’s Gift tax battles


Inheritance and gift taxes are devolved to the Autonomous Communities, which are able to regulate the tax by establishing deductions, exemptions and allowances.

Several Autonomous Communities have established very significant allowances in relation to gifts made between close members of a family. In Spain close relatives are defined by its Civil Code in terms of familial affinity, as first and second degree relatives, i.e. grandparents, parents and children and spouses.

These allowances include Cantabria (100% allowance), the Canary Islands (99.9%), Madrid, Andalucia, and Murcia (with 99% rebates). Other parts of Spain give no allowances at all!

After years of vying for the best gift tax system in Spain, Murcia has thrown in the gauntlet and is proposing to come up with a further improvement to its gift tax regime. As part of its 2022 annual budget process, it is proposing to grant a 99% gift tax allowance for third degree relatives which, if passed by its Parliament, would set a precedent that will spark the competitive fervour of the rest of the autonomous communities. Third degree relatives are siblings and their children, i.e. uncles, nephews, nieces.

Andalucia is proposing a 45% allowance for 2022 and we will have to see what the other Autonomous Communities will come up with between now and the end of 2021.

It has to be said that these tax breaks may seem dramatic but the fact is that gift tax does not generate much tax revenue for Spain and substantial gifts to third degree relatives are not particularly frequent. Still, anything that reduces the tax burden on the population is good, especially for taxes that are widely regarded as unfair and excessive, as is certainly the case for inheritance and gift taxes.

To put this absurd tax into context, lets compare the tax on an 800.000€ gift between an uncle and niece in various parts of Spain:

Tax payable

As to knowing which system should apply to a person, this is determined by where the recipient of the gift has been living.

To illustrate the absurdity of having such wildly disparate tax systems within the single country of Spain, imagine that the uncle has two nieces and makes a gift of the same 800.000€ to each niece. One lives in Murcia and the other in Asturias. The unlucky niece who lives in Asturias has to pay more 320.000€ more tax than the other.

The obvious trick of quickly moving to a tax favourable part of the country is not going to work because to establish residency for inheritance and gift taxes a person has to have lived in that Autonomous Community for at least four years before receiving the gift.

From the perspective of an expat., albeit one who has lived and worked in Spain for more than 30 years, it is hard to imagine a more absurd tax system.

Well perhaps I shouldn’t say that too quickly because we also have the wonderful example of the municipal plusvalia tax. More about that in a separate article coming soon……

Spence Clarke specialises in the provision of Spanish tax, accounts, law and labour services, mainly to foreigners with interests in Spain. Our cross-border knowledge helps clients adapt to the Spanish system with the minimum of doubt and disruption. If you have any questions about this article or any other matter contact us, with no obligation, to see how we can help you.