What does the EU ruling mean for non-resident inheritance tax in Spain?

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Since the EU ruling about inheritance tax on 3rd September, many readers have been in touch asking what they should do about their individual circumstances and what happens how.
The information below has been supplied by Ábaco in response to these questions:

What does the EU ruling mean for non-resident inheritance tax in Spain?
Spanish inheritance tax applies in the majority of cases when someone with property in Spain dies. However, the amount to pay varies enormously depending upon:

•    The value of the estate
•    The benefactor’s relationship to the deceased
•    Status as a resident or non-resident
•    The autonomous community or region of Spain that the property is situated in (applies to residents only)

Of all these different factors, the most contentious has been the different taxes levied dependent on the residency status of those bequeathing and inheriting. In Spain, non-residents generally pay a lot more inheritance tax than residents.

An illegal practice
Within the European Union it is expected that there is freedom of movement between countries and that members are not discriminated against.  

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. 

 

The implications for you?
There are many non-residents out there who have paid a large amount of inheritance tax at one time or another and are keen to claim it back as soon as they can.

The September court case established that non-residents can claim back inheritance tax paid out since the first ruling in 2010. Those who think they fall into this category, can present their claims now. However, it is very early days. The Spanish government has not yet changed the law and this means that any Spanish inheritance tax owed by a non-resident must still be paid. Only when the law is changed will this stop. The EU might have made its decision but it is up to Spain to change its practice.

There is, as yet, no case law to follow and there will need to be a period during which various scenarios are tested out.  During this time there is a degree of uncertainty about how any cases presented will fare.

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. Not only will they be unable to charge more for non-residents in the future but there will be many claims to settle too.

In the meantime, 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 make their claim.

Click Inheritance tax in Spain to see our web page and read further information.