Spanish Inheritance and Gifting Tax

Spanish Inheritance and Gifting Tax – Overseas matters.

On 3 September 2014 it was decided by the European Court of Justice (ECJ) that the Spanish legislation that charges greater inheritance tax (IHT) and gift tax rates to foreigners than it does to Spanish residents, is discriminatory.

The problem was raised to the ECJ by the European Commission after it was considered that the Spanish legislation on IHT and gift taxes in comparison to non-residents was not in keeping with the free circulation of money and people within the EU. The ECJ did accept Spain’s argument that these current tax laws did not obstruct the freedom of the movement of people, however it was an obstruction to the free movement of the capital.

The issue with the Spanish law as it stands is the rate of taxation to inheritances or gifts of property in Spain is dependent on whether the recipient is a Spanish resident. This is due to the inheritance tax rates for people who are Spanish residents are regulated at a regional level, meaning that the regional authorities can apply their own financial reductions if they so wish, whereas for non-Spanish residents the national tax rate applies, which is frequently a higher rate than what a Spanish resident living in the same region would be paying.

Comment

The outcome of the ruling should result in a reduction in the amount of inheritance tax and gift tax that the state can charge a non-Spanish resident that is the recipient of legacies and gifts. A source from the Spanish Treasury Ministry has commented on how the government is investigating how to bring the Spanish legislation in agreement with the ruling. Furthermore, non-residents who have paid IHT/gift tax over the past four years because they either inherited or were given a Spanish property, can demand a refund of the difference between the amount of tax they were charged at the time and the amount of tax they would have been charged had they been a Spanish resident. There are some cases where it may be possible to claim the same refunds of tax paid more than four years ago, however local professional advice would be required by anyone in that situation.