Inheritance tax on property in Spain: plusvalía and how to cut the bill

Heirs usually associate inheriting a flat with a long emotional and administrative process. But it also has significant tax implications that a large share of heirs only discover when the authorities demand payment and the deadlines are already running. Acting earlier, with complete information, can save thousands of euros and avoid surcharges and late-payment interest.

Spain has one of the most complex inheritance tax systems in the Western world: each region (comunidad autónoma) manages the tax with its own reliefs, reductions and rates, which creates differences of up to 99% between regions for the same type of inheritance. An heir in Madrid pays almost nothing on an inheritance from their parents. The same heir in Asturias or Aragon can pay a significant percentage.

Inheritance tax: who pays it and when

The Impuesto de Sucesiones y Donaciones (ISD, Spain's inheritance and gift tax) is a state tax devolved to the regions that taxes the transfer of assets and rights free of charge, both by inheritance (mortis causa) and by gift (inter vivos). In the case of inheritances:

• The taxpayer is the heir or legatee (whoever receives the asset).
• The deadline for filing the return and paying the tax is 6 months from the death of the deceased, extendable by a further 6 months if requested within the first 5 months.
• The taxable base includes the value of the inherited assets less the debts of the deceased. For properties, the base is calculated on the cadastral reference value or the market value (whichever is higher under the rules in force since 2022).

The regional differences: from paying nothing to paying 20%

• Madrid: 99% relief on the tax payable for groups I and II (spouse, descendants and ascendants). In practice, inheriting from your parents or your children in Madrid costs almost nothing.
• Andalusia: 99% relief for groups I and II since 2019. Also almost free for direct heirs.
• Canary Islands: 99.9% relief for heirs in groups I, II and III. Practically zero.
• Galicia, Murcia, the Balearic Islands, Cantabria: Significant relief for groups I and II, but with more nuances. In some cases there are maximum limits on the value of the inheritance for the maximum relief to apply.
• Catalonia: By contrast, the reliefs are smaller and the tax can be significantly higher than in other regions, even for inheritances between parents and children. Reductions in Catalonia have gradually been adjusted upwards, but the tax burden is still above the Spanish average for group II.
• The Basque Country and Navarre: These foral territories (with their own tax regime) have their own inheritance rules, with generous reductions for direct family members but with particularities in the treatment of certain assets and in the formal obligations.

The plusvalía municipal: the tax many people forget

As well as inheritance tax, inheriting a property creates the obligation to pay the Impuesto sobre el Incremento de Valor de los Terrenos de Naturaleza Urbana (IIVTNU, the tax on the increase in the value of urban land), popularly known as the plusvalía municipal. This tax is managed by the town hall where the inherited property is located and taxes the increase in the value of the urban land since the last transfer.

• Deadline: The deadline for declaring and paying the plusvalía on inheritances is 6 months from the death (the same as for inheritance tax), extendable by another 6 months.
• Method of calculation: Since the 2021 ruling of the Tribunal Constitucional (Spain's Constitutional Court) that struck down the previous objective calculation method, the plusvalía can be calculated using the objective method (coefficients applied to the cadastral value of the land) or the real method (the difference between the acquisition value and the transfer value). The taxpayer can choose whichever is more favourable.
• Exemption if there is no real increase in value: The case law of the Constitutional Court has established that if there is no real increase in the value of the land between the last transfer and the current one, the plusvalía can't be applied. In markets where prices have fallen or stayed stable, it can be shown that the tax doesn't apply.

Legal strategies to reduce the tax cost of an inheritance

• Accepting the inheritance in the region with the lowest ISD: The region with jurisdiction over the ISD is the one in which the deceased lived for the most days in the five years before their death. If the deceased lived in Catalonia, the ISD is applied under Catalan rules even if the inherited properties are in Madrid. This can't be changed afterwards, but with planning ahead (retiring to another region, for example), it can be done during the person's lifetime.
• Applying to defer or pay in instalments: The ISD rules in many cases allow payment in instalments (up to 1 year, extendable in some cases) or a deferral when the heir's liquidity doesn't allow immediate payment. It's important to apply within the initial deadline.
• Tasación pericial contradictoria (a challenge by independent expert appraisal) if the cadastral reference value is excessive: If the cadastral reference value of the inherited property (which has been the base for the ISD since 2022) is higher than its real market value, the heir can challenge that valuation through a tasación pericial contradictoria. It's a process that requires advice but can reduce the taxable base significantly.
• Lifetime gifts in regions with low taxation: In regions with high inheritance taxation, part of the future inheritance can be brought forward through inter vivos gifts if the region where the donor lives also has relief for gifts. It requires estate planning several years ahead.

What to do in the first 6 months after the death

1. Obtain the death certificate and the certificate from the Registro de Actos de Última Voluntad (the Registry of Last Wills) to find out whether there is a will.
2. If there is a will, obtain an authorised copy from the notary. If there is no will, apply for a declaration of heirs ab intestato (on intestacy).
3. Locate and value all the assets in the estate, including properties, bank accounts, vehicles and debts.
4. Calculate the ISD for each heir with the tax adviser.
5. Sign the deed of acceptance and allocation of the inheritance before a notary.
6. Settle the ISD with the relevant region and the plusvalía with each town hall.
7. Register the new ownership in the Registro de la Propiedad (the Land Registry).

Related resources: For the map of ITP (the property transfer tax) and tax differences between regions (which complements the ISD analysis), the article on ITP by region has the comparative tax context. For tax optimisation of an inherited property portfolio through an SL (a Spanish limited company), the article on investing through an SL has the structuring options. For due diligence on the inherited property before deciding whether to keep or sell it, the due diligence checklist is the starting point.