Spain’s Highest Court Rules Against the IHT That Discriminates Non-EEA Citizens

Supreme Court - Spain
Spain’s Highest Court Rules Against the IHT That Discriminates Non-EEA Citizens

Spain must play fair with Non-EEA citizens

Non-EEA owners of Spanish property who are non-residents in Spain must pay the same Inheritance Tax as EU citizens, ruled the Spanish Supreme Court last month.

The Tribunal Supremo (Spanish Supreme Court) ruled last month that controversial practice of charging non-residents of Spain higher rates of inheritance tax is unlawful even if the non-residents in question live outside of the EU.

The ruling opens up an opportunity for those non-EEA citizens with property in Spain who for the past four years have been charged a higher inheritance tax, apply for a refund.

Spanish IHT had been in the focus of attention of the EU Court of Justice a while ago in 2014, when the Court ruled the practice unfair and breaking EU regulations and according to the ruling EU citizens were granted the same IHT treatment as Spanish residents.

Now the ruling by the Spanish Supreme Court covers all property investors no matter where in the world they actually reside.

Inheritance tax in Spain differs from region to region with many regions applying tax breaks and benefits. The central IHT (state rates), however, doesn’t grant any tax breaks and consequently is much higher.

Before the latest Court ruling, only Spanish residents could opt into regional IHT, while non-residents had to pay the state rates.

Now, however, non-EU residents can request the application of the regional law in situations where it would be more favourable for them than the state law.

Location Matters!

It is also important to understand how exactly IHT is applied in the region where investors buy property. There is a significant variation among the 17 regions of Spain and each region has powers to regulate certain taxes, and inheritance tax in particular.

“As a consequence, the tax to be paid by, say, a 30-year-old who inherits from his father € 800,000, of which €200,000 corresponds to his father’s house, would be nothing in Andalucía, but it would be around €1,586 in Madrid, compared to €155,393 in Aragón, or €103,135 in Asturias.”
Santiago Lapausa, a Marbella-based tax adviser with JC&A Abogados

In the wake of the Court ruling some property and tax experts expect changes in Spain’s current inheritance and gift tax rules as the Spanish authorities will be forced to amend their current legislation.

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