Changes to Inheritance Tax in Spain: Are you entitled to a tax rebate?

Since the summer of 2014 there has been a wide media coverage on the EU ruling affecting Spanish Inheritance and Gift Tax. The existing tax legislation in Spain, at that time, created a situation of unequal tax treatment depending on whether the deceased and/or the inheritors were Spanish residents or not.

In the case of non-residents a much higher tax bill was raised as these were subject to state tax regulations, whereas Spanish residents were subject to the regional tax regulations of their autonomous area.


EU ruling against Spain regarding Inheritance and Gift Tax

This last 3rd September the awaited ruling of the European Court of Justice (ECJ) on the appeal made by the European Commission against Spain, in relation to the Spanish legislation on Inheritance and Gift Tax (Case C-127/12), was published.

The ruling states as follows:

“To declare that the Kingdom of Spain has not complied with its obligations pursuant to articles 63 TFEU and 40 of the Agreement on the European Economic Area of 2nd May 1992, by allowing differences to be set in the tax treatment of gifts and inheritances between resident and non-resident successors and grantees in Spain, between resident and non-resident deceased in Spain and between gifts and similar disposals of real estate property located in and outside Spanish territory.”

The judgment brings the process started in 2007 to an end, thus sustaining a breach of European Law, by maintaining that the rules on jurisdiction laid down by the legislations of the autonomous communities go against the principle of free movement of capital, as European residents are excluded from their application.


Changes to Spanish tax legislation

Following this finding, the ECJ concluded that Spain had to modify its Inheritance and Gift Tax regulations in order to come in line with European law.

The change finally took place and a law was passed on 27th November 2014 (Law 26/2014), correcting this inequality towards non-resident EU citizens and adapting Spanish legislation to EU law, which will be applicable to all bereavements and donations occurring after 1st January 2015.

The result of this modification is that all EU citizens with assets in Spain will be able to choose the application of the Inheritance and Gift Tax regulations of the appropriate autonomous region:

  • If the deceased is an EU citizen with assets in Spain, the heirs can choose the application of the tax regulations of the region where the assets are located.
  • If the deceased is resident in Spain, the heirs can choose the application of the tax regulations of the region where the deceased was residing.
  • In the case of a gift the beneficiaries can choose the application of the tax regulations of the regionwhere the assets to be gifted are located.

Summing up, in the case of inheritances and gifts to be processed in Spain, non-residents can benefit from all the tax reductions previously only awarded to residents, thereby doing away with any kind of discrimination.


Claiming money back

With regards to the tax payments made by non-residents prior to the judgment that could not have a more beneficial autonomous regulation applied to them, claims are being made by inheritors who have paid Inheritance Tax in Spain for a tax refund on the overpaid amount.

However, not everyone is entitled to a reimbursement, certain conditions have to be met:

  • Either the deceased or inheritor was a non-resident of Spain at the time of death.
  • Claimant must be an EU resident at the time of death.
  • Claimant must have paid Inheritance Tax in Spain in the last 4 years.
  • The inheritor’s relationship to the deceased must have been that of a lineal descendant/ascendant/spousee.  parents, grandparents, children or grandchildren (there is no reclaim available for inheritances from siblings or common law relationships due to the complexity of the common law regulations throughout the EU).

If you meet these requirements you could be entitled to a significant rebate, and we recommend you seek legal advice from professionals with experience in the matter.

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Gabriella Mary Trussler
4408 Ilustre Colegio de Abogados de Almería

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