Spanish Inheritance tax: introduction & recent changes in regulation
Spanish inheritance tax is charged on the acquisition by individuals of assets/rights as a result of inheritance, donation or life insurance policies where the person paying the insurance policy is different to the beneficiary (subject to certain exceptions).
The taxpayers are the heir/legatee or the beneficiary of the donation or insurance policy. Survivor spouses are not automatically exempted from Spanish inheritance tax as happens in other countries.
Spanish inheritance tax is calculated on the basis of the value of the acquisition by the taxpayer, determined by the fair market value of the assets/rights which are included in the estate. There are some specific rules for certain assets/rights (e.g. usufruct/life interest). Encumbrances attached to the assets along with the liabilities transferred by the deceased and certain debts and expenses related to the deceased, may be deducted. The rate of Spanish inheritance tax can be significantly increased if the beneficiary is not a close relative (unmarried partners can get it doubled). Spanish inheritance tax is payable within six months from the date of death/donation and surcharges/interest would apply in case of delay payment.
Spanish inheritance tax is a national tax but the Autonomous Regions have the power to regulate some aspects. In fact many regions have approved lower tax rates and other benefits that significantly reduce the tax burden. As a consequence of this, inheritance tax could be much higher under national law rather than under regional regimes.
Historically, regional law was not applicable when non-residents were involved. In those cases, the inheritance was subject to national inheritance tax increasing the tax bill. However in 2014 the EU Court of Justice ruled against Spanish IHT concluding that the Spanish IHT rules breached the EU Treaty principle of free movement of persons since only Spanish residents were permitted to apply regional tax benefits. As a result of this Spain amended its IHT Law and now EU/EEA residents are entitled to apply regional rules in the same terms as Spanish tax residents.
Additionally, the Spanish High Court (Judgment 19.02.2018) has recently concluded that the European free movement of capital principle should apply also to third countries. According to this, the inheritance tax benefits established in the regional rules may be applicable to any individual, regardless of whether resident in Spain, the EU/EEA or a third country. However, Inheritance Tax Laws have not been modified yet.
As a result of the above there is an opportunity to recover taxes unduly paid under the former and discriminatory inheritance tax Law. A refund can be requested if no more than four years have elapsed since the last available day to submit the IHT return.
To have a private discussion about a Spanish inheritance please contact the My Lawyer in Spain team.