Inheritance and Gift Tax applies to Spanish resident heirs, beneficiaries and donees and is charged on all assets received (located in Spain or abroad). Nonresident beneficiaries are also subject to this tax as nonresident taxpayers, and must pay the tax in Spain only on the acquisition of assets and rights (whatever their nature), that are located, exercisable or to be fulfilled in Spain
REDUCTIONS
Reduction of 95% of the tax base deriving from a transmission mortis causa to spouses, children or adopted children or, in their absence, ascendants, foster parents or collateral relatives up to the third degree of a professional business, an individual enterprise, or interests in entities or usufructs on them of the donor or deceased which were exempt from wealth tax. The requirements are as follows:
The beneficiary of a transmission mortis causa must keep the assets received for at least 10 years.
The beneficiary cannot carry out transactions that result in a substantial diminution in the value of the assets.
Reduction of 95% of the tax base for inter vivos transfers of interests in an individual enterprise, professional business or in entities belonging to the donor which are exempt from wealth tax (or which meet the requirements for such exemption) to spouses, descendants or adopted children provided moreover that (i) the donor is at least 65 years old or has a permanent disability, and (ii) if the donor had been discharging management duties, he/she must discontinue them and stop receiving remuneration in that connection.
The tax is calculated by adjusting a tax scale of progressive rates (depending on the value of the estate or gift) with a coefficient that takes into account the previous net worth and the degree of kinship with the donor.
Some autonomous communities, however, have established reductions which result in a tax payable of zero (or close to zero). This applies to inheritances and/or gifts, depending on the autonomous community, in the case of “close” heirs or donees (children, grandchildren, spouses, ascendants).
With regard to the place where the tax must be settled, a distinction must be made, in general, between transmissions mortis causa and inter vivos:
Transmissions mortis causa: As a general rule, in the autonomous community in which the deceased was habitually resident.
Transfers inter vivos: As a general rule, in the autonomous community where the acquirer is habitually resident, except in the case of real estate for which the place will be the autonomous community where the property is located.
These general location rules were applicable until recently to taxpayers resident in Spain; non-residents had to be taxed under State legislation in any event (which on many occasions caused discrimination because, as indicated, some autonomous communities have implemented significant rebates)
with thanks to http://administracion.gob.es,www.investinspain.org,www.icex.es