Tomás and Elena inherit from their widowed father the flat in Burgos where he lived for the last thirty years, with a reference value of 240,000 €, and 120,000 € in accounts. Their aunt Rosa, aged 68, their father's sister, had lived with him since he was widowed three years ago, and the will leaves her a quarter of the flat. All three wonder whether the family home pays the same as the money. It does not, and the aunt can benefit too.
What the State law says
Article 20.2.c) of Law 29/1987, the law on the Spanish inheritance and gift tax (ISD), sets out, among the reductions in the base, a specific one for the deceased's habitual home:
- Percentage: 95 % of the value of the home.
- Cap: 122,606.47 € for each taxpayer, that is, per heir, not per estate.
- Who can apply it: the deceased's spouse, ascendants and descendants, or a collateral relative over sixty-five who had lived with the deceased during the two years before the death.
- Holding requirement: the acquisition must be kept for the ten years following the death, unless the heir dies first.
If the holding requirement is not met, the last paragraph of article 20.2 requires payment of the part of the tax that was not paid thanks to the reduction, plus late-payment interest.
That is the State rule. The autonomous communities (Spain's regions) can approve their own reductions that improve on the State one (percentage, cap, holding period or relatives included), and many have done so. Which rules apply depends on the deceased's residence; it is explained in which autonomous community applies.
What "habitual home" means here
Law 29/1987 does not define the habitual home. The reference usually taken is the income tax one: article 41 bis of the Income Tax Regulations describes it as the building that is the taxpayer's residence for a continuous period of at least three years, and accepts that it had that status even if the three years are not completed because the taxpayer dies first.
In practice, doubts arise in three situations:
- The deceased was in a care home in their last years. If the home was still their address and was neither let nor sold, there are arguments for keeping its status as habitual, but the answer depends on the applicable rules and on the evidence, and it should not be taken for granted.
- The deceased had two houses and spent periods in each. Only one can be the habitual home, and that is proved with municipal registration, utility consumption and tax address.
- The home was community property. The reduction applies to the part that forms part of the estate, not to the whole property.
The calculation for Tomás and Elena
Each sibling receives half of the flat after the aunt's share (90,000 € of the home each, since the aunt keeps 60,000 €) and 60,000 € from the accounts. To show the mechanism we apply the State scale in article 21 and the State reduction in article 20.2.c), without regional improvements.
Without the home reduction (comparison scenario)
- Taxable base per sibling: 90,000 + 60,000 = 150,000 €.
- Kinship reduction (group II): 15,956.87 €.
- Net taxable base: 134,043.13 €. Tax: 18,277.60 €.
With the home reduction
- Home reduction: 95 % of 90,000 € = 85,500 € (below the cap of 122,606.47 €).
- Net taxable base: 150,000 − 15,956.87 − 85,500 = 48,543.13 €.
- Tax: 4,685.10 € + 12.75 % of 612.41 € = 4,763.18 €.
Each sibling saves 13,514.42 € on the State scale. The bill for the inheritance is paid mainly on the money in the accounts, not on the flat.
Aunt Rosa
- She is the deceased's sister: a second-degree collateral relative, group III, with a State reduction of 7,993.46 € and a multiplying coefficient of 1.5882.
- She is 68 and lived with him for the two years before his death: she meets the requirements for the home reduction.
- Home reduction: 95 % of 60,000 € = 57,000 €.
- Net taxable base: 60,000 − 7,993.46 − 57,000 = 0 €. Tax: 0 €.
Without proof of living together, Rosa would be taxed on a base of 52,006.54 € with a coefficient of 1.5882. Evidence of those two years (joint municipal registration, post, health card) is worth money.
| Heir | Group | Share of the home | Home reduction | State tax |
|---|---|---|---|---|
| Tomás | II | 90,000 € | 85,500 € | 4,763.18 € |
| Elena | II | 90,000 € | 85,500 € | 4,763.18 € |
| Rosa | III | 60,000 € | 57,000 € | 0 € |
When the cap comes into play
The cap of 122,606.47 € is felt with expensive homes and a single heir. If Tomás were an only child and inherited a flat worth 400,000 €, 95 % would be 380,000 €, but the reduction would stop at 122,606.47 €. With two children, each applies their own cap to their half: 190,000 € × 95 % = 180,500 €, also capped at 122,606.47 € per head. Sharing the home among more heirs entitled to the reduction multiplies the total cap.
The reduction is lost if the acquisition is not kept for ten years from the death. Selling the flat in the third year to share out the money forces a regularisation: paying back what was saved plus late-payment interest. Before selling an inherited home that benefited from this reduction, calculate the cost of giving it back and compare it with the benefit of selling now. Some regions set different holding periods; the one in the rules under which the tax was assessed applies.
The same home, another advantage: deferring payment
Article 39.3 of Law 29/1987 allows, for the inheritance of the habitual home by the same relatives who can apply the reduction, payment of the corresponding tax to be deferred for five years without interest, with sufficient security, and then split into ten half-yearly instalments with statutory interest. It is useful when the reduction does not cover the tax and the heirs have no cash. We develop it in what to do if there is no money to pay the tax.
Information we need to apply it
To defend the reduction in a tax check you need to gather, before filing: the deceased's historical certificate of municipal registration, their income tax returns showing the address, the reference value of the home at the date of death (see what value to put on the inherited house) and, if there is a collateral relative who lived there, proof of living together and their age.
If you are in this situation, send us the make-up of the estate and who lived in the house through the inheritance form. We check whether the reduction applies under the relevant rules and warn you of the weak points before filing.
Tomás and Elena decided to keep the flat, where Rosa still lives. Nobody is in a hurry to sell before the ten years are up.
When the heir lives outside Spain, the home reduction is still available under the regional rules that the second additional provision allows. We deal with it at Salama Tax for inheritance and gifts.