What is inheritance and how many different types of inheritance are there? At Stelae, we will explain all about the inheritance process including the parts of inheritance, taxes, expenses and much more.
What is inheritance?
According to the RAE dictionary definition, inheritance is ‘the set of assets, rights and obligations of someone which are transferable to their heirs or legatees upon their death'.
In legal terms, this translates as the transfer of assets from a deceased person to their heirs who will be entitled to possess these assets in whole or in part based on the regulations specified in the law of succession.
Anyone who is not prevented by law can leave an inheritance, i.e. become a testator.
What types of inheritance are there?
Now that you know what an inheritance is, it is important to know that in Spain inheritances are regulated by the Civil Code. In its section on inheritance law, it establishes that an inheritance is divided into three equal parts: legitimate, improvement and free disposition.
Since the amount of the parts of an inheritance may be different depending on the region, it is worth knowing the particularities that may exist in each autonomous community. However, the general rule establishes a third of the total estate for each one.
Below we will look at what each part of an inheritance consists of:
Legitimate inheritance
The Civil Code protects one third of the total assets to be inherited so that they are distributed equally among the direct descendants or forced heirs of the deceased.
Regarding this part of the inheritance, the testator cannot impose any modification with respect to its distribution, unless a forced heir is disinherited, for which certain requirements must be met which are also included in the current regulations.
Improvement inheritance
The law establishes that one third of the inheritance can be distributed according to the last will and testament of the deceased in order to improve the portion of the inheritance that corresponds to the direct heirs.
It can be applied as an improvement in favour of one or more of the forced heirs (never to third parties) and in the individual proportion that the testator wishes. It is possible that one of the heirs may benefit more from this, as it is not obligatory that the distribution must be made in equal parts.
In the absence of a will, this third would be divided equally among the forced heirs and would therefore be added to the reserved portion.
Inheritance of free disposal
The third part of an inheritance can be distributed freely by the deceased. This means that they can even leave their assets to people outside their family.
In order to make a record of this, it is essential to make a will. Otherwise, the legitimate share system would be applied for the distribution of all assets, in other words, in equal parts among the forced heirs or direct descendants.
What types of inheritance are there in Spain?
Taking all of the above into account, we can establish two types of inheritance in Spain: testamentary and intestate.
Testamentary or intestate inheritance
When a person makes their last will and testament in a will, it is said that this inheritance process is a testamentary inheritance. This document establishes the distribution of assets, respecting the legal restrictions mentioned above.
Among the types of inheritance, testamentary inheritance is always the best option if you want to avoid complex inheritance processes for your loved ones.
Non-testamentary or intestate inheritance
If the deceased person has not left a will or it has been annulled, this inheritance process is said to be an intestate inheritance and, therefore, the designation of heirs and the way in which the assets are distributed is established according to the order of priority set out in the law:
- Children and direct descendants, who receive the assets in equal shares.
- Ascendants (when the deceased person has no descendants).
- Widowed spouse (if there are no descendants or ascendants and according to certain criteria).
- Siblings, nieces and nephews.
- Uncles and aunts.
- Collateral relatives up to the fourth degree of consanguinity.
- The State (if none of the above heirs exists).
What taxes are levied on an inheritance?
An inheritance not only includes the transfer of assets and rights, but also of obligations, which involves the payment of certain taxes in order to be able to inherit.
The most well-known taxes are inheritance tax and municipal capital gains tax which are the taxes that involve the greatest outlay for the heirs.
- Inheritance tax is imposed on capital gains and must be paid within six months of death.
- Municipal capital gains tax is applied when a property is inherited and must also be paid within six months.
Note that inheritance in itself does not have to be included in your tax return, but you do have to include any benefits you may get from the inherited property. For example, if you inherit a house and rent it out.
And also keep in mind that in each Autonomous Community these taxes may vary or even not exist depending on the region in question.
What are the inheritance costs?
In addition to the payment of the corresponding inheritance taxes, it is usual that the heirs also have to pay other expenses. For example, tax costs, notary fees or land registry fees.
Only heirs who renounce the inheritance that they are entitled to by law or that has been assigned to them by the testator are exempt from paying taxes and expenses.
