Article updated 2017.
Excellent news: Inheritance tax discrimination of non residents has come to an end, but you must claim it when you file your inheritance tax returns as the tax office will not offer it to you unless you do. Make sure that when you file your inheritance tax as a non resident beneficiary that your solicitor calculates your tax also as if you where a resident in the autonomous region with the maximum connection with the estate (using any additional exemption offer in that region of Spain to it´s residents ). If the tax calculated is lower as a resident you are entitled to claim the same tax level as a resident on your self assessment form.
Please note that if you present a self assestment and do not make the above calculations an claim the most favourable outcome on your self assessment form , then you would only be able to get your money back by going to court. It is an easy mistake to make . People are still presenting the self assessment forms withoght taking advantage of the system that has been created by the sentence of the European Court of Justice of 3rd of September of 2014 and the resulting change the government has made to the inheritance tax forms for non residents introduced on the 31st of December of 2014
What is behind the changes:
On the 3rd of September of 2014 the European Court of Justice sentenced Spain to pay a specific person back some of their inheritance tax on the basis that if they had been a resident in Spain they would have been allowed higher exemption rates. (In Spain each autonomous region has created extra exemptions for their residents , and as non residents can not take advantage of this they are discriminated (more or less depending on which autonomous region we compare their situation with.). Unfortunately the sentence itself did not change the SPANISH legislation and did not provide a system establishing who could claim money back or any way of non residents not having to pay their inheritance tax as usual. All it did was recommend that Spain adapt it´s legislation.
In other words after the sentence of 3rd of September of 2014 non residents still had to pay as usual with the only difference that if they took the Spanish government to court after a few years they may obtain a similar sentence by the ECJ.
We wrote about this when the sentence was dictated and you can find it on a previous post.
In this occasion Spain has reacted quickly to the situation created by the Sentence issued by the ECJ on the 3rd of September of 2014 (Case C-127/12 ).
We have just got back from the Christmas Holiday to find the government has been busy during the holidays , publishing a new norm . The inheritance tax office has created new forms that allow non residents to apply the deductions that they would have been entitled to if they had been a resident of the autonomous region of Spain with higher exemptions (1. as long as they consider that a. they are indeed being discriminated which is not always the case and 2. and that they invoke the autonomous region with the largest connection (mainly where the assets are situated which is easy when their is only one or they are all in the sam autonomous region).
To determine if somebody has been discriminated we need to take calculate their inheritance tax as non residents and then calculate their tax as residents:
For example residents heirs in group I (descendants and spouse ) in Andalucia are entitled to receive their inheritance tax free if it is less than 175000 euro , but pay on everything but the first 16000 euro if their inheritance is above 175000 euro. This has changed and for death after 1st of Jan. of 2017 you pay no inheritance tax if you inherit less then 250000 euro. Some tax if you inherit between 250000 euro and 350000 euro and the full amount of tax if you inherit more than 350000 euro. Please read about the changes to exemptions in Andalucia in 2017.
Non-residents up to now paid on everything but the first 16000 euro regardless of the amount inherited.
You need to be careful because residents have to declare their worldwide assets , so if we are to be correct with the comparison we consider that you can only claim the discrimination if the total of the estate received including the assets in other countries amounts to less than 175000 euro. What would happen if you claim the exemption based on the fact that your assets in Spain are less than 175000 euro ? Our interpretation would be that this is not correct but we are uncertain about the way the tax office will treat these cases. If you pay too much you will never hear back from them. If you do no pay enough they have four years to claim the tax due with surcharges.
For further information about this and who is actually affected by the situation , please read our previous article which we printed back back in September of 2014 when the sentence was issued by the ECJ.
For the full text (in Spanish )of the new norm that has established one extra all important box on the inheritance tax forms please click below.
New norm that ends Spanish inheritance tax discrimination
If during the last four years you consider you have indeed been discriminated , then contact a solicitor who will in the first instance work out if in your particular case their has been discriminated. If this is the case we recommend you initiate a claim for a refund. In Andalucia those discriminated will be in principle. those that have inherited less than 175000 euro from their spouse , parents or grandparents.