Inheritance tax for non-residents in Spain - is it time to claim?

The EU ruling and its implications for non-residents

Inheritance Wednesday, October 1, 2014
Non-resident inheritance tax in Spain

In some countries, inheritance tax applies to only the wealthy – those with estates worth an amount out of the reach of most ordinary people. This is not the case in Spain. Spanish inheritance tax applies to most people when they bequeath their property and there can be a sizeable percentage to pay, particularly if you are a non-resident.

If you are a resident who leaves property to another resident, the tax to pay can be negligible. If you are a resident leaving property to a non-resident similarly low taxes apply provided the non-resident agrees not to sell the property for the next ten years. If they do sell their inheritance then the higher rate of non-resident tax will be levied with interest.

But if you are a non-resident bequeathing your property then inheritance tax becomes particularly steep.

A big difference in tax

The Spanish inheritance tax that a non-resident might have to pay is significantly higher than the tax that residents have to pay. The final total depends on other factors too such as where your property is located and the relationship of the deceased to the inheritor.  

Is it right that there should be such a contrasting charge depending upon the residency status you have? Many people think not, particularly when those paying so much more are members of the European Union.  

In this respect the Spanish inheritance tax discrepancy isn’t just a conflict between the interests of individuals but represents the flouting of European Legislation.

The EU ruling

In 2010 Spain was told by the European Commission that it must change its inheritance legislation. However, Spain did not act on this and the EU ruled on Wednesday 3rd September 2014 that Spanish inheritance tax is discriminatory against non-residents.

The European Court of Justice established that Spain is in breach of European Union treaties and that Spain must comply with the ruling. However, there is, as yet, no indication as to how or when this will happen. It should perhaps be noted that it isn’t only Spain that applies different rules depending on residency. The German tax authority has also been taken to court for the same reason.

Claiming money back

In this latest case, the judge ruled in favour of non-residents claiming back over-payment of inheritance tax made since the previous ruling in 2010. Those affected are able to present their claims now. However, not every case will be accepted for reimbursement and it will be necessary to test out each one. There is no case law as yet to follow.

At the moment the law in Spain remains the same as always and people must continue to pay non-resident inheritance tax until Spain changes its own laws.    

The loss of revenue to Spain will be significant and no doubt the hesitancy to correct matters is partly due to this. Spain will have to look for other ways of meeting the shortfall from changes in legislation.

We advise those who think they might be due a reimbursement of Spanish inheritance tax to wait. At the moment the judgement is still fresh and Spanish law remains the same. In time this must change and then it will be easier for non-residents to claim. 

Whatever line Spain has taken in the past, the current situation cannot continue indefinitely and residents and non-residents alike will be watching carefully to see what move Spain makes next. 

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