On 1 January 2015, changes to the Spanish Inheritance and Gift Tax Law 29/1987 (IGTL) came into force eliminating the discriminatory IGT tax treatment of non-residents in Spain, thus bringing the Spanish IGTL into line with European law following the judgment of the European Court of Justice of 3 September 2014.
The new rules do away, for EU and European Economic Area residents, with the previous two-tier IGT tax system under which non tax residents paid more IGT under State IGT rules than Spanish tax residents paying IGT under regional Autonomous Community rules. The State IGT rules continue to apply to non-residents living in countries outside the EU/EEA.
As a result of the changes, both Spanish tax residents and non-residents are entitled to benefit from the more favorable tax rates and allowances offered by the 17 Autonomous Communities (AC) in Spain to which legislative powers in respect of IGT have been devolved.
Effective IGT tax rates differ substantially from one Autonomous Community to another (allowances can be as high as 99% in some ACs such as the Balearic Islands or Madrid).
The following new rules now apply.
(i) Deceased non-resident in Spain (but resident in EU/EEA). The beneficiary will pay tax according to the rules of the AC in which the greatest value of the deceased’s Spanish assets is located (or, if there is no property in Spain, in which the beneficiary is resident).
(ii) Deceased resident in Spain and beneficiary is non-resident (but resident in EU/EEA). The beneficiary will pay according to the rules of the AC in which the deceased was resident.
(i) Immovable property in Spain. A non Spanish tax resident donee (resident in EU/EEA) of immovable property in Spain will pay tax according to the rules of the AC where the property is situated.
(ii) Immovable property outside Spain. A donee tax resident in Spain of immovable property located in the EU/EEA will pay tax according to the rules of the AC in which he/she is resident.
(iii) Movable property in Spain. A non Spanish tax resident donee (resident in EU/EEA) of movable property in Spain will pay tax according to the rules of the AC where the property was situated for the most time during the previous 5 years.
The ruling of the European Court of Justice opens the door to non residents who have paid excessive or undue IGT tax on inheritances or gifts, to claim a refund. The time limit for such claims is effectively, 4.5 years from the time for payment of IGT, or (if the claim is time barred) 1 year from the date of the publication of the ECJ judgment (10.11.15) in the case of a claim against the State for breach of EU law.