It’s a Good News day for Non-Residents Inheritance Tax – Maybe Not !

Posted in: CAB Spain Team Blogs, Philip's Blog,
Author: Philip Carroll
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19 Comments

I think Blogs must be like buses, there isn’t one for a while, and then two come along at the same time. On Saturday I published the proposed changes to the tax legislation following the completion of the parliamentary processes of the draft bill.

Since the draft tax legislation was first published in July 2014 the EU has ruled that the inheritance tax laws were discriminatory against non-residents of Spain. See the details in this post in September by Myra Azzopardi Swanson.

So, at the end of the draft tax bill the government has added an amendment to the Ley del Impuesto sobre Sucesiones y Donaciones which addresses the concerns of the EU in the following manner :

It clarifies that the proposed changes apply only to residents of the EU and the EEA, and that residence in an Autonomous Community is defined as living there for the greater number of days in the five years upto the day before the taxable event.

Inheritance

In order to avoid discrimination where the deceased or the beneficiary of an inheritance is not habitually resident in Spain, i.e a non-resident it clarifies that

 Where the deceased was not resident in Spain, taxpayers are entitled to the application of the regulations approved by the Autonomous Community where the greatest value of the property and assets are situated in Spain.
 If the deceased had been resident in an Autonomous Community, non-resident taxpayers who are resident in a Member State of the European Union or the European Economic Area (EEA), are entitled to the application of the regulations of the Autonomous Community where the deceased lived.
 In plain English this means that the rules of the Autonomous Community will apply to
o the inheritance of assets based in Spain by a non-resident (i.e a resident of an EU or EEA country other than Spain),
o the inheritance of assets by a resident of Spain from a non-resident (i.e a resident an EU or EEA country other than Spain).

Update Spring 2018 re the necessity of EU citizenship, ruling by the Spanish Supreme Court.

Gifts

There are similar, but not quite the same rules in respect of gifts

 In respect of a gift of real estate located in Spain to a non-resident taxpayer (i.e a resident an EU or EAA country other than Spain), the regulation of the Autonomous Community where the real estate is located will apply
 In respect of a gift of real estate located in an EU or EAA country other than Spain, to a resident in Spain, the regulation of the Autonomous Community where the beneficiary is resident will apply
 In respect of a gift of moveable assets located in Spain to a non-resident taxpayer (i.e a resident an EU or EAA country other than Spain), the regulation of the Autonomous Community where the moveable assets have been located for the greatest period (i.e number of days) in the 5 previous years upto the day before the taxable event.

So, that all sounds very positive, unless you live in the wrong region. So for example, the Inheritance tax regulations in Valencia are very different to the ones in Murcia, and Andalucia.

Ignoring property, the tax free allowances for Valencia in Group 1 and 2 (children, spouse, parent i.e. direct ascendants/descendants ) are now €100,000 (plus an extra €8,000 for every year under 21). Over that there is relief on tax payable of 75%.

Group 1 and 2 residents of Andalucia receive a tax free allowance of €175,000 (providing the personal wealth of the beneficiary is less than €402,678). If the inheritance is more than €175,000 then there is no regional tax free allowance, and the state allowances apply (€15,996)

Group 1 residents in Murcia receive relief of 99%. This also used to apply to Group 2 residents, but this benefit was abolished in July 2013, so the only allowances they receive now are the same as the state (€15,996).

So, if you live in Valencia or Andalucia, depending upon the value of the assets, there may be little inheritance tax to pay, and that the good news, but if you live in Murcia (or Andalucia if the inheritance is more than €175,000), there’s still a shedload, and that’s not good news.

So, it seems to me that this may be a short term change, and is probably the best that could be achieved in the short period of time that the Spanish government had to implement the change. So, it now doesn’t discriminate against non-residents, but against non-residents and residents that happen to live in the wrong region.

Note: please check the Update higher up in this blogpost.

Please note: The information provided is based upon our understanding of current legislation. It is not legal advice but is provided freely to enable you to be properly informed. We recommend that if you are considering taking action, you should seek professional advice.

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