February 17, 2016 No Comments

Unfair Spanish Inheritance Tax Rules Changed After Court Ruling

The European Court of Human Rights has recently made a decision, which has had consequences in relation to Spanish property tax laws. Specifically the ruling relates to the charging of inheritance tax on Spanish properties to residents and non-residents. The ruling is good news to non-residents who have inherited properties but not for the Spanish government, who will lose revenue.

Prior to this ruling the Spanish government had charged higher rates of inheritance tax to non-Spaniards, than for Spanish nationals that had remained resident. In Spain tax rates are set by both the national government and the 17 self-governing communities. Each region or community can make tax rates and exemptions more generous, or less generous than the levels set from Madrid.

The practice of charging higher inheritance tax for non-resident non-Spaniards was pointed out to the European Commission, and they considered the allegations of inequality and unfairness to be justified. The Commission took the case against the Spanish government to the European Court of Human Rights during 2012.

What The Verdict Means For You

The European Court of Human Rights ruled that Spain’s laws in relation to inheritance and gift tax were indeed incompatible with the free movement of both people and money within the European Union.

This means that anyone that is non-resident in Spain yet inherits a property there will pay the same in inheritance tax as a resident Spanish national. It represents a blow to the revenues that Madrid will receive from the tax.

The level of inheritance tax that has to be paid depends on which of the 17 communities the inherited property or properties is located within. In the majority of the communities the spouse or the children of the deceased property owner tend to get a higher rate of exemption. Other relatives or friends should expect to pay more, but at least they know they would pay the same as a Spanish national.

Examples of exemptions include a 99% exemption rate for spouses / children in Murcia, the Balearic Islands, Madrid and also Valencia. If the property is in Andalusia, 175,000 euros or £148,000 is inherited tax free. The allowances in Catalonia are the most generous; a spouse can inherit 650,000 euros or £512,000, whilst children can receive up to 400,000 euros or £315,000 each.

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