Spain forced to backpedal on unfair expat inheritance tax laws

The change in Spain’s tax ruling could benefit thousands of Brits, even those who have already inherited

The European Court of Justice today ruled that Spain’s inheritance tax laws – which are currently higher for expats than they are for Spaniards – are discriminatory.

In a landmark ruling, the Court decided that Spanish authorities are not legally allowed to charge different rates of inheritance tax. The move could benefit thousands of British expat families that, previously, were subjected to higher tax rates on certain assets, such as inheritance or gifts of property…

Many Spanish residents had been able to take advantage of the country’s often complex tax relief options in order to reduce their obligations on inheritance to almost zero. Non-residents, however, were unable to utilise these laws, meaning that Brits who spend part of their time between the UK and Spain – largely holiday home owners – were subjected to a higher rate.

However, the European Court of Justice has ruled that Spain cannot charge citizens of other EU countries different rates to residents. Calling the Spanish legislation “discriminatory”, the Court has moved to force Spain to repeal the law.

The investigation came following a referral to the European Commission in 2012 challenging the law, stating that it went against the spirit of the EU’s approval of free movement of people and money within the union.

According to international tax and wealth managers Blevins Franks, expats could often be asked to pay up to 80 per cent more in tax than Spanish residents. Although tax laws are set by each of Spain’s 17 autonomous communities, the ruling will cascade throughout all of them.

Previously, Andalucía would allow €175,000 to be inherited by a spouse or child tax-free – a more favourable rate than the national rate of tax, which sets the limit at just €16,000.

“Such generous exemptions are in stark contrast to the state rules, where the allowances are very much reduced,” said Blevins Franks’ Jason Porter. Although Spain has not yet officially responded to the ruling, the European Court of Justice has said that the authorities have six months in which to change the law.

And the good news for British expats in Spain? They may be able to reclaim tax paid on inheritance or gift (secession) assets already received.

“People who have paid more can appeal to have their money paid back now,” Luis Cuervo of Spanish Legal Reclaims told the Telegraph. “But you might have to go to court to get a refund. There will be a lot of paperwork and it must be perfect. The tax office is going to look at everything because they don’t want to pay it back.”

There is a limit of five years to make a claim from the time of the inheritance, and Spain’s authorities will have to pay interest on the amount due of anywhere between 15-20 per cent, so if you think you have a claim, it’s time to get a move on…