Spanish high court rules higher inheritance tax rate for non-EEA residents unlawful

The Spanish High Court’s decision closes a discriminatory practice in inheritance tax law.

A landmark ruling by Spain’s high court this week has deemed that the current inheritance tax (IHT) rules regarding property owners who are not Spanish nor live in a European Economic Area (EEA) country are discriminatory and therefore unlawful…

The ruling will see the current law – which imposes a higher rate of IHT for non-residents of Spain who reside outside of the EEA – amended, and could lead to hundreds, potentially thousands, of compensation claims for refunds.

The Tribunal Supremo has said that the law discriminates on the grounds of nationality, and means that non-EEA citizens who have paid IHT on property in Spain will likely be able to claw some of that money back from the authorities.

The law change will not affect EU citizens who have paid standard IHT rates on property in Spain, but is likely to have an impact on American, Russian, Chinese and Middle Eastern individuals who have inherited Spanish property.

The long-standing law is an echo of an old Spanish legal practice that was founded under the regional inheritance taxation system, which meant that Spanish regions could apply tax breaks and reductions when a property owner who lived in their region died.

This was extrapolated internationally, and deemed that the IHT was calculated under central state rules where no tax breaks were available. Naturally, the European Union (EU) soon found that this practice was discriminatory, and in 2014 this unjustified breach of EU regulations was closed by the EU Court of Justice.

Now, however, the ruling extends globally, and could, said Spanish tax lawyer Antonio Barba, see several hundreds of non-EU taxpayers be entitled to apply for a refund of IHT paid to Spain over the past four years since the EU ruling was made.