Planning an inheritance saves money and avoids problems for our future heirs.Assets donated as a gift during our lifetime are subject to practically the same taxation as bequeathing them as an inheritance.

A principle of Spanish tax legislation is that payment of taxes is obligatory whenever wealth has increased as a consequence of an inheritance, legacy, donation or encashment of a life insurance policy. That is to say when there is an increase in patrimony (wealth) without a justifiable consideration.

To settle any debts with the Inland Revenue various concepts must be taken into account:

1. Tax Base. Thge same amount is not payable for everything. The net value of an inheritance must be declared (amount less expenses). In the case of a donation, the actual amount; in the case of a life insurance policy, the amount received.

2. Net Tax Base. Tax deductions are dependent on whether both parties to the transfer are still alive or if the donor has died. The kinship and the age as well as the mental and physical condition of the beneficiary are also taken into account.

3. Gross Tax. This is progressive. Which means that the higher the inheritance, the higher the tax rate.

4. Final payment. Once a final payment has been calculated a self assessment may be carried out, (this should be as accurate as possible as the Inland Revenue may carry out its assessment as verification), or one awaits an assessment by the Tax Authorities (who are responsible for valuing property). This is much slower.

A tax inspection by the Inland Revenue pays careful attention to the following: ficticious donations to future heirs solely to avoid paying Inheritance and Gift Tax; withdrawing money from the bank on the death of a relative; not returning a tax declaration within six months of the death of the benefactor.

Questionable situations can arise. Such as when someone puts property in their children's name when their children cannot prove that they had the means to aquire them.

All things considered, it is certainly advisable to make a will in order to reduces the bureaucratic problems of future heirs.