The European Court of Justice has ruled that the Spanish authorities cannot charge different rates of inheritance tax for residents and non-residents.
Non-residents who have been discriminated against by paying more tax than Spaniards for inheritances or gifts of property are likely to be due a refund of the difference.
There is a complex range of tax relief options in Spain that can reduce the tax to almost zero for residents, now available for non-residents. Non-residents may be owners of holiday homes in Spain or expats who split their time between Spain and the UK.
The court ruled earlier this month that charging other members of the EU different rates to Spanish residents went against the spirit of the European Union. It said the Spanish legislation was discriminatory and there was no reason why inheritance tax should be charged at a higher rate for non-Spaniards than for Spaniards.
The European Commission referred the case to the court in 2012 after considering that the legislation was incompatible with the free circulation of people and money within the EU.
In Spain, inheritance and gift tax (known as succession tax) is governed by both the state and the 17 autonomous communities.
Many of these communities have amended the state rules to make them more beneficial, but only for residents. In order to be classed as a resident, you must have lived in Spain for five years. Non-residents have to pay the national rate of tax, which is far less favorable.
What this means for you
This varies by region. In Murcia, the Balearic Islands, Madrid and Valencia, up to 99pc of the deceased’s assets are exempt from succession tax where the beneficiaries are children and/or a spouse. In Andalusia, up to €175,000 (£148,000) inherited by a spouse or children can be tax-free, and in Catalonia allowances are a maximum of €650,000 (£512,000) for a spouse and €400,000 (£315,000) for a child.
“This is a significant change, as these exemptions differ dramatically from the state rules”, comments Raquel Perez of Perez Legal.
“The new exemptions are far more generous than the previous state rules. In comparison, the general allowance under state rules was only €16,000 – the equivalent of approximately £12,600 – to pass to spouses or children.”
When considering inheritance tax planning, we recommend that you seek advice from our trusted partners, Perez Legal Group, who know the tax and legal systems of both countries and can advise you on the options available to you in your particular circumstances.