The European court has just issued a ruling on the 3rd September which finds that the Spanish Inheritance tax is discriminatory as it applies different regulations depending on whether the heirs or beneficiaries of gifts are residents or non residents.

The above mentioned ruling is important as the Inheritance tax is one of the highest in Spain, since the rates go from the minimum of 7,65% up to the 34%, depending on the wealth you get out of the inheritance/gift. The point is that as this tax is partially regional competence, many regions had designed specific tax exemptions for the benefit of those who were resident in their corresponding region. For instance, in Andalucia, resident children do not have to pay inheritance tax as long as the value of their lot in the inheritance does not exceed € 175.000. However, if any of the heirs was non resident, then the maximum allowance or tax free amount is €15.957,56. This gave rise to outrageous differences in taxation – even between brothers – depending on their residency not only abroad, but also within Spain.

The court has found that such different treatment is clearly discriminatory as it makes impossible that the non residents can access to those specific allowances or tax-free amounts which have been designed for residents. This means that the non residents should be entitled to the same regional allowances they could not get before.

As to the implications, these are still to be ascertained but it seems clear that the central government shall be obliged to address a complete reform of the inheritance and gift tax urgently. Previous experience with similar rulings from the EU Court concerning taxes have enabled that those who have already paid a discriminatory tax can apply for the refund, as long as this payment has been done over the last four years. However, the website of the tax office remains silent about this issue so far.

In our opinion, this refund is now more than a possibility, but the situation is not as clear as it would seem. We can expect that the tax office raises additional requirements (such us tax residency certifications in the respective EU country) in order to block or paralize the refund queries which shall be received in short.

Furthermore, there is an additional complication since the structure of the tax has been regional so far and the competence (and the applicable allowances or exemptions) have been regional as well depending on the deceased person’s residency: if someone died being resident in Andalucia or Valencia, then the Andalusian or Valencia exemptions where to apply. However these criteria cannot be applied directly to non residents, since by definition they are not resident in any region.

The obvious answer would be that in the event all the assets (real estate, accounts) are within the same region (Andalucia) then the applicable legislation shall be the one where the properties and assets are located. However, the matter seems far more complicated in cases where the assets are disseminated in several regions, which would make necessary to “select” the right legislation out of all the potential ones (i.e. A dies with a house in Marbella, developed land in Castilla la Mancha and another apartment in Benidorm, what do we do here?). In such cases, our opinion is that the general criteria in tax law (place where most of the assets are located or where the main dwelling is located) should be applied, but in the end of the day these matters shall have to be addressed in the comments that the Tax Office shall deliver – hopefully soon – in their website.

We shall keep reporting on this issue…


About Fairway Lawyers

English, German and Spanish speaking lawyers/abogados serving Spain's Marbella, the Costa del Sol, Granada, Antequera and inland Andalucia. Tel: Telephone +34 952 77 11 50 or email: If you have a matter that requires immediate attention please contact Diego Echavarria +34 606 307 885 (mobile)