Inheritance tax changes for non-residents as from 2015

As from 2015, the Spanish law on inheritance and donations (ISD) will change to give non-residents the same rights as residents. The change came after Spain lost an EU court battle to apply a higher rate of tax on non-residents who died leaving assets in Spain.

The EU court said that the ISD (Impuesto sobre Sucesiones y Donaciones) was discriminatory and against free movement in the EU. The ISD is one law across all of Spain, but the regions of Spain are allowed to modify the limits (and include exemptions) to the base law, which has no exemptions applied. The estate of residents who die are taxed by rules of the regional communities, whereas the estates of non-residents are taxed by the central state via the base law. That means that non-residents usually ended up paying a far higher rate of tax on their estate or donation, as no exemptions or limits were applied.

So as from 2015, the ISD on non-residents will be applied in the same manner as that of residents – the regional law of the Region that the bulk of the assets are in will be applied. Here are some case studies showing how the new law on inheritance and donations will be applied as from next year.

Inheritence

  • Non-residents.

If a resident of another EU member state dies who has assets in Spain, then the tax authorities will apply the tax regime of the region where the bulk of the estate is located. The law will also be the same whether the inheritors are resident or not in Spain. For example, if a German (resident in Germany) dies leaving a €600.000 house in Marbella and bank accounts in Madrid, the Andalucian inheritence law will be applied to the whole of the estate.

What if the inheritors are living in Spain but the estate is outside of Spain? Well, the inheritor will be taxed by their region of residency upon the portion of the estate they receive.

  • Residents

What is the deceased lives in Spain and the inheritors live in another EU state? Well, the inheritence law of the region where the deceased lived will be applied. If we assume our German friend from above was resident, but in Madrid and not Marbella, then the law of Madrid will be applied to the estate.

Donations

  • Inmuebles (property and the like)

If you donate an inmueble (property) to a resident of another EU country, they can choose to liquidate tax on the donation according to where the property is situated. (So if you gift your Mojácar home to your child in London, it’s the Andalucian tax that’s applied).

If you are resident in Spain and receive a gifted property in another EU member state, you are taxed according to where you live. (So if you live in Mojácar and you are gifted a home in Paris, it’s the Andalucian tax that is applied).

  • Muebles (moveable assets)

If a non-resident is gifted a bien inmueble (ie car, jewellery) then the applicable regional tax will be the one where the assets have spent the majority of their days during the five years before the donation happened.

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