Inheritance Tax, IHT, Spain, EU, ECJ

Inheritance tax in Spain is based on the beneficiary’s estate – not the deceased, so non-residents would find themselves paying up to 40% on assets

The European Court of Justice (ECJ) has ordered Spain to change the law related to inheritance tax or Impuesto sobre Sucesiones y Donaciones – judged illegal due to discriminatory rates charged to foreigners – and repay approximately €600 million to beneficiaries who have already paid the sometimes astronomical 40% inheritance tax during the past four years.

Spanish Inheritance system against EU fundamental principles

The current system of inheritance tax in Spain discriminates between residents and non-residents and although controlled by the central government, the specific rates and exemptions are decided by the regional authorities. To benefit from the regional exemptions you currently have to be a resident – living in Spain for the past five years, otherwise, adhere to the less favourable national rate.

Spanish law dictates that inheritance tax is based on the beneficiary’s estate- not the deceased, so non-residents would find themselves paying up to 40% of inheritance tax often on large valued assets such as property, whereas residents can pay almost 0% depending on their regional exemptions. The most disparity between the rates are in coastal areas and Madrid.

The European Commission’s case began in 2007 requesting changes to Spain’s system which contravenes one of the EU’s fundamental principles of free movement of capital specifically for non-residents who cannot benefit from the regional tax exemptions. With foreigners making up almost 14% of Spain’s population, the discriminatory system which determines how much inheritance should be paid was deemed illegal and in 2012, with no changes made to legislation the commission started procedures. The ECJ ruled at the beginning of September 2014 that the system violates two articles of EU legislation and enforced changes to their laws on inheritance tax by January 2016.

Spain will now have to change their tax laws for non-residents, a blow to their coffers as inheritance tax provides a huge chunk of income to regional governments.

How to claim back overpaid inheritance tax

To claim back what could run into hundreds of thousands of Euro, you must ensure that:

  • At the time of death the claimant or deceased were non-residents in Spain
  • At the time of death, the claimant was a resident in an EU country
  • The claimant must be a direct descendent or spouse (ie. not siblings)
  • Claimants must provide the correct paperwork, (modelo 650 or 652) with accurate figures to avoid any disputes that may end up in court. It may be a lengthy process and claimants may only apply once for the repayment.
  • The payment of taxes must have been made within the past fours years and the paid sum must have been over €4,000. The tax would have been paid within 6 months of the testator’s death.

The Spanish tax office will have to pay interest on the total sum in the region of 15 – 20%.

Indeed, each decision will be made on a case by case basis depending on the applicable law and regional legislation. Please call Spainwide on the above number or send us an email to see how we can help you claim back your refund.


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