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Spain tackles ECJ’s inheritance tax criticisms

The Spanish government has taken steps to bring its inheritance tax rules into line with a recent European Court of Justice (ECJ) ruling.

On 3 September, the ECJ held that Spain was not acting in the spirit of the European Union by charging different rates of inheritance tax for residents and non-residents.

A new inheritance tax law amending the Spanish law 29/1987, passed on 27 November 2014, makes clear the tax liabilities now faced by residents and non-residents alike.

Under the old system, each of Spain’s 17 autonomous communities had the power to set their own inheritance tax rates and reliefs. But this was applicable to residents only.  Often the rates set by these autonomous communities would directly contradict the (less favourable) inheritance tax rates and reliefs set by Spain’s central government for non-residents.

What does the new ruling say?

On 1 January 2015, the new inheritance tax laws took effect, streamlining inheritance tax liabilities for EU and EEA nationals who are non-residents of Spain.

The new law made four important amendments clarifying the government’s stance on inheritance tax. They are:

  • In cases where the deceased was a resident in Spain and the beneficiary is a non-resident there, but is an EU or EEA national, the beneficiary will pay tax according to the tax rules in the autonomous community in which the deceased was resident.
  • In cases where the deceased was a non-resident of Spain, but resident in EU or EEA, and had assets in the country, the beneficiary will pay tax according to the rules of the autonomous community where the greatest value of the assets and rights that form part of the Spanish estate are situated.
  • If an individual is a non-resident in Spain, but he or she is an EU or EEA national that has received real estate in Spain by way of a gift or a lifetime transfer not for value, then that individual will pay tax according to the rules of the autonomous community in which the real estate is situated.
  • If an individual is resident in Spain and he or she acquired real estate situated in a Member State other than Spain, either by way of a gift or lifetime transfer not for value, then that individual will pay tax according to the rules of the autonomous community in which he or she resides.

A person is considered to be a fiscal resident in Spain if he or she spends more than 183 days in the country during a 12 month period. If the deceased is deemed to be a resident of Spain, then their place of residence will be determined by where the deceased lived in Spain for the greatest period of time during the five-year period ending on the day before their death.

So for example, if the deceased had been a Spanish tax resident living in Marbella (in the autonomous community of Andalucía) and had spent most of the 5 years before his death in that autonomous community, those beneficiaries of the estate not resident in Spain would pay tax according to the tax rules of Andalucía, the autonomous community in which the deceased was resident.

What can non-residents of Spain do?

The question then arises as to what redress can be had for non-resident beneficiaries, who are resident in the EU or EEA and who have already had the misfortune of paying discriminatory rates of inheritance tax.

Those directly affected by the discriminatory inheritance tax can make an application to the Spanish tax office asking for a rebate. Unfortunately, it is unlikely that cases pre-dating 2011 will be eligible for this remedy.

To be fully aware of the of the inheritance tax implications in relation to assets in Spain for non-resident beneficiaries who are EU or EEA residents, and the liabilities for Spanish residents in line to inherit in a Member State other than Spain, it will be imperative to seek independent legal advice.

Next steps

If you paid inheritance tax in Spain between 1 January 2011 and 1 January 2015 then you may be able to reclaim some or all of the amount paid.  Please refer to our pages on Reclaiming Spanish Inheritance Tax for more information. 

If you would like to discuss the matter, please be in contact with us. You can contact us by email at info@solicitorsinspain.com, by telephone on 020 3478 1420 or by submitting your query using our contact form.  

Last updated: 14 August 2020

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