Change to the Spanish Inheritance Tax Regime


We are pleased to inform you about a most important change to the Spanish inheritance tax regime that has been mandated by the European Union.

The  change is of special interest to: i) Spanish non residents who presently own property in Spain; ii) those who have received a Spanish inheritance or donation as a non resident in Spain, and iii) Spanish residents (regardless their nationality) who have received a foreign donation or inheritance while they were living over here.

You probably recall that a number of years ago, Spain had to change its rules regarding Capital Gains Tax (“CGT”) vis-a-vie non-resident European Union citizens. Back then, the EU Commission advanced infringement proceedings as it contended that Spain's imposition of higher tax rates on non residents selling their property in Spain amounted to discrimination in breach of the EU treaties. Not only did Spain have to change the offending law but it was forced to repay the difference between the higher discriminatory rate and the rate imposed on residents. This resulted in substantial rebates being paid out by the Spanish State.

We now find ourselves in a similar situation regarding Spanish tax laws on  inheritance and gift tax. Again, the EU commission took Spain to task and this time the infraction received the attention of the European Court of Justice which has found against Spain in a landmark ruling.

The basis of the discrimination that was found to exist rests in the nature of the structure of the Kingdom of Spain itself. The Kingdom comprises seventeen Autonomous Regions which set their own laws on inheritance and gift tax. Each of these regions afford certain tax reductions to those living within their territories.

The reductions applicable in the Autonomous Regions can be highly substantial. When a non-resident is included in this scenario and, therefore, any of the regions of Spain can be applicable, the legislation to be applied was the national law, which does not contain the high reductions that apply in the Autonomous Regions.

While decisions of the European Court of Justice can often seem of little practical relevance to the general public, this decision will have a most tangible result. Spain must urgently remove the discriminatory affects of the law in question and those who suffered a loss as a result of the discrimination now have the right to seek redress; in other words those who paid tax at the higher rate will have the right to claim a refund from the  Spanish Tax Authorities.

If you or one of your clients have benefited from an inheritance or donation in the past over here in Spain, in which the national legislation was applied, we at SWAN Partners have the necessary expertise to assist you in securing  refund of the overpaid tax. Our way of working is to firstly carry out a free-of-charge study of your case and then provide you with our initial views on your chances of making a successful application. We will then seek your agreement to proceed on your behalf. Our fees and charges will be set out clearly for your consideration in advance.

Please do not hesitate to contact me if you require any further information or indeed wish to discuss anything concerning your affairs in Spain.

We look forward to hearing from you.

José Oltra, Tax Partner
SWAN Partners, Calle Colón, 20, 6-12, 46004 Valencia, Spain