GOOD NEWS ON SPANISH INHERITANCE AND DONATION TAX
Last week the European Court of Justice ruled that Spain could no longer charge non-residents of Spain more inheritance tax or donation tax than a resident of Spain would pay “Sentencia Del Tribunal De Justica de 3 de septiembre de 2014”.
This is a massive landmark ruling that has an effect on all non-resident property owners in Spain, and especially those who have paid inheritance tax or donation tax in Spain in the past four years and possibly six. (It actually also corresponds to inheritances where tax was paid by Spanish residents on assets outside of Spain).
Currently inheritance tax is paid by a beneficiary on an inheritance they receive in Spain. This is calculated by looking at the net assets in Spain of the deceased person, applying a tax free allowance which differs depending on the relationship between the deceased and the inheritor, calculating the percentage tax applicable to the inheritance and then making a final calculation. For non-residents, some bills have reached tens of thousands.
Donation tax is exactly the same but is applied when a person is the recipient of a lifetime inheritance, e.g. a property is gifted to them while the donor is still alive. Again, the tax paid by a non-resident of Spain is usually currently far higher than for a resident.
There is a very complicated tax set-up in Spain as the country is divided into 17 autonomous communities and inheritance taxes charged by each regional or local government can differ greatly. However, in most areas, residents pay virtually no inheritance tax, whereas non-residents can pay huge tax bills.
As Spain has so many non-residents, charging them more for these two taxes has been a lucrative source of income and considered very unfair (remember how wealth tax was also abolished for this reason). The situation led to the European Commission ordering Spain in 2010 to change its inheritance legislation as this differentiation is not justified, but as Spain did nothing (probably due to the complexity of changing the rules in so many regions), the European Commission took Spain to the European Court of Justice in 2010.
Last week, on the 3rd September, the European Court ruled that charging higher tax rates if the deceased or recipient of an inheritance or gift is non-resident is illegal and discriminatory.
Central and regional governments in Spain will now have to review the regulations related to this tax in each Community and this may take a little while as allowances, deductions and tax rates will have to be looked at. Until the new rules complying with the Judgement are passed (it cannot be appealed), we will not know how matters may change in the regions regarding taxes associated with property assets.
However, the very good news in the meantime is that:-
1) Inheritance tax and donation tax will cease to be charged at higher rates for non residents in the near future.
2) People who paid inheritance tax or donation tax in the past (we are unsure yet whether claims can go back four years, or six years) will be able to put in a legal claim for overpaid tax, possibly for as much as 99% of the tax in the Valencian region. This claim needs to be submitted by a lawyer specialised in these matters.
3) Inheritance tax or donation tax at the current time should still be paid until the new rules are clarified as it is a very recent ruling, but a legal case can be
made for overpayment of the tax and a claim submitted to be refunded. Or we will advise our customers that we could take the risk and not pay the tax.
The Tax office will send a claim for the unpaid tax, and we can legally fight that. We can give different options.
4) Properties in Spain that may still be in the name of the deceased and the family has resisted selling, (as worried about the impact of both inheritance tax and transmission tax reducing significantly any gain), will now be able to place the property on the market, safe in the knowledge that higher inheritance tax for non-residents has now been declared illegal, thus making it more worthwhile to sell.
5) This Judgement can only have a positive effect on the Spanish property market, as non-residents concerned about purchasing a property and the burden of inheritance tax need no longer be worried. Also, it will be much more likely for properties to be able to be sold where the owners have died.
The immediate effect is that we are able to help those who feel they have a legal case for having overpaid inheritance or donation tax in the past possibly six years. For some they may be entitled to up to tens of thousands back.
Please contact Amanda on firstname.lastname@example.org or 966760917 and she can explain the very small amount of paperwork required for the claims, and fees involved. The petitions will initially have to go via the tax office in Spain and if this is not effective (as they will be inundated), a relatively straightforward court action may be required.
Remember that we are also able to help those who are inheritors of a property that they may wish to sell, and those who feel that they no longer wish to deal with the upkeep and ongoing costs of their property, and wish now to donate the property to members of their family.
Finally, we are absolutely delighted to have been nominated as one of three finalists for “Business of the Year” in the CoastRider Pride of Spain awards, and are very grateful to our loyal customers and the faith they have shown in us.
Nothing on this website shall be construed as constituting advice to you or any other person, as our advice depends on all the circumstances of the person concerned. Nothing contained on this website constitutes investment, legal, tax or other advice nor is it to be relied on in making any decision. You should obtain relevant and specific up to date professional advice from our experts before making any decision. This information may now be out of date.