This is a question often asked by customers who come to our office looking for advice. In this article we will try to explain the current situation so that you can plan the best way of transferring your assets to your loved ones.
In Andalucía inheritance tax has reduced considerably since the Partido Popular (Spain’s right wing party) came into power. This was one of the party’s campaign pledges before it won the elections, and as soon as it took power it fulfilled its promise. Since then there have been a number of discounts (mainly for direct descendants and ascendants, and also the spouse of the deceased person).
HOW DOES IT WORK?
In 2018, a tax-free allowance of one million euros per heir was established for immediate relatives of the deceased person.
a) The following are considered ‘immediate relatives’:
• Descendants (children, grandchildren or great grandchildren) or adopted children.
• Spouse or civil partner (provided the civil partnership has been registered at the Register of Civil Partnerships of Andalucía).
• Ascendants (parents, grandparents, great grandparents)
• Adoptive parents(people who have adopted the deceased person)
This means that any of these people will not have to pay inheritance tax on the inherited estate as long as they do not inherit more than one million euros from the deceased person.
b) Are there any other requirements to apply for this discount?
No. Until 2022, there was the condition that the heir could not have a pre-existing estate worth more than one million euros but this requirement has been abolished as from that year.
c) What happens if I inherit more than one million euros?
You could apply for another 99% discount on the tax payable.
This means that:
• If you inherit more than one million euros from your parent, child or spouse, you will not have to pay tax on the one million euros that you inherit, and you will receive a 99% discount on the tax payable on the amount exceeding those one million euros.
You inherit 1,300,000 euros from your parent, child or spouse.
You do not have to pay tax on the first million.
And on the remaining 300,000 euros you pay inheritance tax with a 99% discount.
d) DOES THIS APPLY IF THE DECEASED PERSON WAS A NON-RESIDENT IN SPAIN OR THE HEIRS ARE NON-RESIDENTS AS WELL?
In the past, the Spanish Government required that non-residents pay inheritance tax without being eligible for any of the discounts established by the Autononomous Regions in their regulations.
The CJEU Ruling, dated 3 September 2014, remedied this situation by declaring that this distinction contradicted European Union laws and ordered the Spanish authorities to change their legislation to remove this discrimination between residents and non-residents in Spain. As a result, Spanish legislation was adapted to allow the tax benefits envisaged in the regulations of each Autonomous Community to be extended to non-residents, under the same conditions, but only if they belonged to the European Union (EU) and European Economic Area (EEA).
e) DOES THIS APPLY IF THE DECEASED PERSONOR HEIRS ARE RESIDENTS IN NON-EU COUNTRIES (e.g. the UK)?
As mentioned above, following the CJEU Ruling, the Spanish authorities changed their legislation to allow non-residents in Spain to receive the tax discounts envisaged in the regulations of each Autonomous Community, provided they were residents in the EU or EEA.
This discrimination towards residents in non-EU countries sparked many lawsuits against the Spanish Government claiming that this legislation infringed upon the free movement of capital which is one of the core principles of EU legislation.
The Supreme Court ruled in favour of those claims to the advantage of the foreign claimants, stating that the discounts must also be applied to non-EU residents.
On 11 December 2018, the Directorate-General for Taxation changed its rules to allow the tax discounts envisaged in Autonomous Community regulations to be applied to non-EU residents.
As a final step, the Central Economic Administrative Court (TEAC) passed a Ruling on 8 March 2018 stating that the restrictions contained in internal regulations that discriminated against residents of third countries should be declared unenforceable.
Therefore, we can confirm that both residents and non-residents, even those residing in non-EU countries (e.g. the UK), can receive the tax benefits established in Andalucian legislation, provided the assets inherited are inside the Autonomous Community of Andalucía.
Juan Antonio Rodríguez García, Lawyer, CostaLuzEstates Legal Department
Please note that any information provided through the CostaLuz Estates blogs, website or social media pages is for informational purposes only and should not be used as the basis for making any particular decisions. Please remember that legislation and case law can change over time and the articles published through this medium may not be up-to-date, which is why we recommend you seek individual specialist advice.
CostaLuz Estates are property consultants who provide estate agency services to international clients who have fallen for the charms of the Costa de la Luz. Our own internal legal department, led by the reputed law firm TempleCAMBRIA, our membership of the Association of International Property Professionals and our use of the external dispute settlement procedure overseen by the Property Ombudsman mean you can rest assured that your decision to buy your dream home on the Costa de la Luz will be a smooth, enjoyable and stress-free experience.