Latest news on inheritance tax reclaims

Filed under : Financial Planning, Tax Planning - Inheritance, Wills, Probate & Inheritance

In September 2014, the European court has decided that Spain has been discriminating against non residents by charging inheritance tax where a resident would be exempt from tax. The decision in Commission v Spain Case C-127/12 states that this discrimination is unlawful.

At present most inheritance tax allowances in Spain are regional and only apply when both the deceased and the beneficiaries are officially resident in Spain. In the case of residents the tax rules of that particular region will apply. If either the deceased or the beneficiary is non resident then the State inheritance tax rules apply.

Several regions including the Balearics, Valencia and Murcia have virtually no inheritance tax between spouses or between parents and children. Some regions have generous allowances. Andalucía allows a gift to a spouse, child or parent of up to €175,000 tax free.

These allowances only apply where the deceased and beneficiaries are residents. If not, the much less generous state rules apply which simply allow a deduction of just under €16,000 from the gift for tax purposes for spouse, children and parents of the deceased. Some non residents may have paid thousands more than residents.

The European court decision says this is unlawful but stopped short of ordering Spain to pay compensation to those wrongly charged inheritance tax. However there is an implied right for those who have been wrongly charged to claim this in the Spanish Courts.

If you have paid Spanish inheritance tax in respect of a death which occurred in the last four years then you may be able to claim this back if :

1) You have paid Spanish inheritance tax.
2) You or the person you inherited from was a non-resident of Spain
3) You are related to the deceased through marriage or a parent-child relationship
4) You would have paid less tax if you had been a resident of Spain. In Andalucía this would apply if the qualifying beneficiary received assets to the value of less than €175,000.

For those who are going through the inheritance procedure the situation is rather less clear. The tax office has not yet changed its official documentation or procedure. However, the advice we have received from tax declaration specialists is that the declaration should be made using the allowances available to residents in the region where most of their assets were located. The onus is then on the tax office to try to challenge this.

It is quite possible the European decision will tempt Spain, and the regions, to recover more inheritance tax from all residents in the future but it is very important to get advice now on whether you may have a claim and how much inheritance tax you will be obliged to pay under the current rules.
Contact [email protected] or request a consultation with Jon Sutton or Antonio Diaz by phoning 951 315 161