Spanish Inheritance & Gift Tax (ISD)

What is the ISD

The Impuesto sobre Sucesiones y Donaciones (ISD) is a direct personal tax governed by Law 29/1987. It applies to three triggering events: inheritances (sucesiones mortis causa), gifts (donaciones inter vivos), and life insurance payouts where the policyholder and beneficiary differ.

Regional variations

As a devolved tax, the ISD produces dramatically different outcomes depending on the autonomous community:

• Madrid and Andalusia: 99% relief for close relatives, making the effective rate near zero
• Catalonia: rates ranging from 7% to 32%, with limited reliefs
• Basque Country and Navarra: separate foral regimes with their own rules
• Other communities: varying levels of relief, often with recent reforms

The applicable community is determined by the deceased’s habitual residence (for inheritances) or the recipient’s residence (for gifts of movable property), based on the 5 years prior to the event.

Family business relief

Article 20.2.c of the ISD Law provides a 95% reduction for transfers of family business shares, provided the deceased held qualifying participation (5% individually or 20% as a family group), a family member exercised management functions, and the shares were exempt from wealth tax. The acquirer must maintain the shares and conditions for 10 years.

Non-resident rules

Following the 2014 CJEU ruling (Welte), non-residents can apply the most favourable regional rules. This eliminated the previous discrimination where non-residents paid higher effective rates under state-level rules.

Planning strategies

Common approaches include lifetime gifting in favourable regions, family holding company structures, usufruct and bare ownership arrangements, and succession agreements (pactos sucesorios) in communities that permit them. Early planning is essential — most reliefs require the conditions to be in place well before the triggering event.