Inheritance Tax Benefits for Non-residents and Residents in Spain

The Kingdom of Spain was condemned by the Court of Justice of the European Communities in its Judgment of 3 September 2014, case C-127/12, because the Spanish regulation of the Inheritance and Gift Tax (IGT) does not comply with the principle of free movement of capitals within the EU. In its present form, this regulation has resulted in a quite clear case of discrimination for non-residents that arises from the application of the State-level legislation to international inheritance cases, while IGT benefits of the Autonomous Communities are applied only to purely internal cases.

Now this state of affairs is going to change. First, as a result of the ECJ Judgment in case C-127/12, if you have paid IGT in Spain in the last four years, you can claim for a tax refund of the excess, on the ground that the non-application of the Autonomous Communities IGT benefits was against EU law. Second, IGT reform already enacted by the Spanish Parliament on 20 November 2014 (in force on 1 January 2015), gives to non-residents the right to the application of the existing tax benefits under the laws of the different Autonomous Communities.

Autonomous Communities IGT benefits may result in a great reduction of the amount of taxes to be paid, especially for surviving spouses and descendants. Depending on the Autonomous Community and the degree of relationship between the beneficiaries and the deceased person, IGT can be reduced up to 99% in some Autonomous Communities. The Autonomous Communities of Madrid, Balearic Islands, Cantabria, Castilla-La Mancha, La Rioja, or Murcia, are in the group where IGT benefits reach a higher percentage. On the contrary, Andalucia, or Catalonia, are in the opposite group.

A very clear group of beneficiaries of IGT reform is non-residents who might inherit property in Spain from tax residents, but a second group of beneficiaries are all those (non-residents and residents) inheriting properties located in Spain from a deceased person with last residence in another country of the EU. In addition, a third category of beneficiaries of IGT reform, would be tax residents inheriting properties located in another country of the EU from a deceased person with last residence also in another country of the EU.

Therefore, good news with regard to future IGT Taxes in Spain for both non-residents and expats, but a word of caution should be added in the case of Andalucia because this Autonomous Community is among those offering less IGT benefits.

Update Spring 2018: please read our article on the ruling by the Spanish Supreme Court re the necessity of EU residency to make use of Regional Allowances.

For further information, please contact Jaime via CAB Spain at: myra@citizensadvice.org.es

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.