There is no double taxation agreement in place between Germany and Spain in the area of inheritance and gift tax law. This means that, in particular, real estate property that forms part of the estate of a German citizen is subject to inheritance tax in both Spain and Germany – unless the deceased was exclusively resident or domiciled in Spain for tax purposes. Although there are reciprocal crediting options under the respective national inheritance tax laws, an inheritance tax return must first be submitted for a property in both countries.
At the end of 2023, the legislator on the Balearic Islands introduced relief for close relatives of the deceased, which significantly reduces the inheritance tax burden. The latest reform (Law 11/2023, of 23 November, Decree-Law 4/2023, of 18 July, modified by Decree-Law 1/2014, of 6 June) affects assets in the Balearic Islands in favor of the spouse, children, parents, grandparents and adopted children of the deceased, if they are appointed heirs by will or by law.
Tax concessions for inheritances. This is new:
In the case of inheritances, the tax relief amounts to 100% of the estate value for the above-mentioned persons. This means that the inheritance of a property to these persons is de facto exempt from inheritance tax in Spain. However, certain limits apply to the valuation of a property in the estate (the taxable value on acceptance of the inheritance may not exceed 120% of the so-called reference value, otherwise this extensive tax relief is lost). In individual cases, there may be reasons to waive this tax relief, for example if a sale of the property is intended shortly after the inheritance and a capital gain is then realized, which can be kept lower by a clever valuation of the property when the inheritance is accepted.
More distant blood relatives of the deceased (e.g. siblings, nieces, nephews) still benefit from a 50% bonus.
The capital gains tax of the municipality in which a property is located is not affected by these concessions, which is often overlooked. This means that the increase in value of the property is taxed.
Important: Even if an heir does not have to pay inheritance tax as a result, he or she must nevertheless submit a corresponding tax return in Spain, the so-called autoliquidación. This is because the principle also applies in Spain that the tax authorities reserve the right to determine whether or not tax is due.
The above tax reliefs only apply to inheritance taxes, not to the taxes that apply to measures of anticipated succession (gifts). Although there are also concessions for gifts in the Balearic Islands following the reform, in the case of real estate these presuppose that the recipient uses the property as his or her usual residence (with certain holding periods and a value limit of just over EUR 270,000). There are further exceptions, e.g. for gift recipients who are severely disabled. As a result, most German heirs of real estate are not eligible for the benefits for gifts.
In the Balearic Islands, there is now considerable relief on inheritance tax. However, even with a 100% exemption from inheritance tax, the acquisition is not completely tax-free, as the capital gains tax of the relevant municipality still applies.
