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Home > Inheritance, Taxes > EU Pulls the Stops and Vows to Put and End to Inheritance Taxation Discrimination on Non-Resident Beneficiaries Inheriting in Spain

EU Pulls the Stops and Vows to Put and End to Inheritance Taxation Discrimination on Non-Resident Beneficiaries Inheriting in Spain

Here we go again. As explained in my article on “Spanish Inheritance Tax: Advantages of Making a Will in Spain (http://belegal NULL.com/articles/showArticle/spanish-inheritance-tax-spain-iht)” the matter of Inheritance taxation is a fairly complex and technical one compounded by the fact that the 17 autonomous regions of which Spain is made can rule on this matter besides the State.

Spurred by protests of non-residents inheriting in Spain (are you to blame Arthur?), Brussels has taken a closer look at this matter and has informed Spain that it gives it a 2 month’s deadline to set the record straight or else it will send the matter off to the European Court of Justice to rule on this issue. In any case don’t hold your breath, it will take some time to sort out.

In Spain there’s an ongoing trend to abolish Inheritance tax, especially in regions under the political control of the conservative party. This has created a three-tier system, speaking broadly, where you have on the one hand an increasing minority of regions which have gone as far as almost suppressing this tax whereas on the other hand you have a majority that apply generous tax allowances without actually suppressing it (i.e. Andalucía). Regional tax allowances are applied only to resident beneficiaries on one of the said regions.

On a third level you have the State regulation which has the least generous tax allowances and is applied to non-residents inheriting in Spain. Beneficiaries of an inheritance resident in one of these regions can take advantage of these generous regional tax allowances which in many cases almost suppress the Inheritance taxable base.

However non-resident beneficiaries inheriting in one of Spain’s regions may be faced with a hefty taxation bill (specially on large estates or when the named beneficiaries are non-family members) as it’s only the State law that is applied in their case in lieu of the more lenient regional laws. This amounts to a formal discrimination between residents and non-residents. These provisions are deemed to be incompatible with the free movement of workers and capital which the founding EEC Treaty of Rome enshrines. Brussels wants for non-resident beneficiaries to have application of State law waived and instead apply regional laws which are more tax-friendly. The problem will be deciding on the “connecting factor”. You can read in English the European Commission’s press release on following this link. (http://ec NULL.europa NULL.eu/taxation_customs/resources/documents/common/infringements/factsheet/2010/05/2010-05-513-es-tax-personal_en NULL.pdf)

Following what’s happened in similar cases, we can safely assume that non-resident beneficiaries will be able to benefit in the future from the generous regional tax allowances that are now reserved exclusively to those holding resident status in one of Spain’s 17 different regions. Again, this new regulation will greatly reduce lawyer’s headaches. One just cannot stop himself from having warm feelings towards Brussel’s legislators that keep making our life’s easier.

Related articles:

  • New EU Regulation to be Passed on Succession and Wills -18th May 2010
  • Spanish Inheritance Tax: Advantages of Making a Will in Spain (http://belegal NULL.com/articles/showArticle/spanish-inheritance-tax-spain-iht) – 3rd September 2009
  • Free Testamentary Disposition for UK Citizens: Only if You Own Property in the UK (http://belegal NULL.com/blog-by-antonio-flores/free-testamentary-disposition-for-uk-citizens/) – 22nd October 2008
  • Spanish Inheritance Tax Abolished? I’m Afraid Not! 19th September 2008
  • Ways on How to Avoid Inheritance Tax on Spanish Property (http://www NULL.marbella-lawyers NULL.com/articles/showArticle/how-to-avoid-spanish-inheritance-tax-on-spanish-property) – 22nd June 2005
  • Applicable Inheritance Law to Estate Located in Spain (http://www NULL.marbella-lawyers NULL.com/articles/showArticle/spanish-estate-inheritance) – 16th April 2004
  • Spanish Inheritance Tax: How much is it? (http://belegal NULL.com/articles/showArticle/spain-inheritance-tax) – 1st February 2000

Inheritance, Taxes , , , , ,

  1. Arthur Stuttard
    June 17th, 2010 at 14:15 | #1

    Guilty – nice to know someone listens to me.

  2. raymundo
    June 18th, 2010 at 08:14 | #2

    Congratulations Arthur, quite a feat!

    Regards,

  3. August 19th, 2010 at 14:41 | #3

    An interesting article from Spanish law firm Garrigues dated from the 27th of July 2010 relating to the same matter:

    http://www.taxand.com/news/newsletters/EU_Law_May_Require_Spain_to_Extend_Domestic_Inheritance_Tax_Exemptions_to_all_EU_Residents?utm_source=Taxand's+Take+July+2010 (http://www NULL.taxand NULL.com/news/newsletters/EU_Law_May_Require_Spain_to_Extend_Domestic_Inheritance_Tax_Exemptions_to_all_EU_Residents?utm_source=Taxand's+Take+July+2010)

  4. September 7th, 2010 at 14:32 | #4

    I have been reading comments and updates on information relating to Spanish inheritance tax , very intersting to hear that the E U will probable discuss this problem soon.
    I have a house £150.000 valuation , in Callosa de segura which I purchased in 2005 , I have a Spanish will and also an English will.
    I am non resident , but intend to become resident soon. My home in England is a holiday static caravan , I spend six months at intervals between the two homes.I have six children who will inherit my homes .
    I would like to hear from the forum any views that would help me to discover what problems I might encounter when I die ,.should I sell the house in Spain now or what ? the home in England depreciates each year.
    my children do not have any means of paying large sums of inheritance tax . anyone any ideas on this matter.

  5. aflores
    September 9th, 2010 at 13:27 | #5

    Dear Madam,

    With a property of the sum you mention and six children I owuld not be too worried in respect of taxes as, if you consider that they have an allowance of 15k Euros each they are not going to inherit more than, approximately, 15k Euros worth of property, for which the applicable tax is no more than 8%. This makes any effort to minimise IHT exposure not worth it.

  6. David
    April 6th, 2011 at 14:49 | #6

    Hello, This article gives me some hope as my father has just passed away after being resident in spain for the last 20 years, going by the will I estimate to receive property worth about 200,000 euros, but as i can’t afford the tax I estimate I will have to pay I could be in a bit of a mess (by estimate i mean my own research i haven’t got over to spain yet to see the abagodo).

    I was wondering if I could challenge any the IHT bill or am I just best to wait and see what happens.
    Any help would be greatly appreciated.

  7. aflores
    April 7th, 2011 at 16:21 | #7

    David, you cannot challenge an IHT bill as you are the one who needs to calculate it and further file it. Only where the tax office is not content with the figure you have quoted will you be able to challenge the supplementary tax demand they will request from you.

    If you wait for 4 years to start counting from the last day of voluntary payment (you have 6 months for this), then you will be able to claim exemption from tax. If they find out meanwhile, that is, if the tax office discovers your tax obligation, you will have to pay between 5 and 20% more in penalties, plus interest.

  8. David
    April 8th, 2011 at 11:19 | #8

    @aflores
    Thank you for your reply aflores, would I be correct in assuming that even though i am a non -resident but my father was a resident i could request being treated as a resident and the local IHT laws be applied instead of the state ones.

    I wouldn’t want to be looking over my shoulder for 4 years so i am hoping the EU makes some official judgement soon as they did with capital gains tax in Spain as the local valencian IHT laws seem a lot more favourable than the state ones.

  9. aflores
    April 8th, 2011 at 16:09 | #9

    David, if you are a non-resident for tax purposes you are then not entitled to any of the allowances this law envisages for residents.

  10. David
    April 11th, 2011 at 10:38 | #10

    Thanks, So I suppose I could wait and see if the EU court gets round to a ruling on the matter (as per the article above)and file for a refund like everyone will probably do, or nudge things along a bit by taking the case to the ECJ myself (bet thats costly).

  11. Carol Woolnoth
    February 7th, 2012 at 21:47 | #11

    Has there been any progress on implementing Inheritance tax
    changes proposed since May 2010?