The latest regulations almost entirely treat the same way tax residents outside of Spain or outside a member state of the European Union.
The Inheritance and Gift Tax controversy
The Inheritance and Gift Tax controversy
The Agencia Tributaria, (The Spanish General Directorate of Taxes) or Hacienda governs inheritance tax in Spain and associated reliefs. It does so in line with the country’s Inheritance and Gift Tax Act (IGTA), which establishes a common platform to regulate inheritance and gift taxes.
However, each autonomous region can modify applicable tax rates and reliefs for their own territories.
The Inheritance and Gift tax has always been one of the most controversial tax figures.
Apart from the political discussions about whether or nor this tax should be abolished, the truth is that it has always caused confusion regarding its application.
The first thing we must bear in mind, is that it is a tax handled by each Spanish region (Comunidad Autónoma), which is why, although there is a state framework regulation, the Regional Governments have certain regulatory competences .
The above means that, basically, the residence in each Spanish region impacts the taxes to pay on inheritance and gifts, which it has always been controversial.
These differences could be even greater in cases in which, either the deceased person or the taxpayers, were non-tax residents in Spain, since, in these cases, the tax had to be calculated according to state regulations, without considering possible regional benefits.
Regarding this last situation, since 2015, there has been a conflict between the European Union (EU) and Spain since the EU considered that there was discrimination with respect to inheritances in which there were taxpayers not tax residents in Spain, but resident in an EU Member State.
As a result, the situation was regularized and EU residents were seen and consider the same as tax residents in Spain, about the application of state regulations or the regulations of each region.
But the previous reform prevented the application of regional tax benefits to non-EU citizens and with assets in third countries, which led to new demands.
Throughout these years, different resolutions have been announced and approved by the European courts and by different Spanish bodies, considering more flexible practices the Tax Administration.
Even the Supreme Court has issued judgments referring to the free movement of capital and its applicability in relation to the Tax on Inheritance and Gifts to non-EU citizens, and prohibiting differences in tax treatment in inheritance and donations, at least on assets located in Spain.
As an end point to this controversy, in the month of July 2021, a change in the Spanish regulations took place, establishing, in summary, the following:
Regarding inheritances, legacies or any other succession title:
- Deceased person not resident in Spain: the heirs or legatees will have the right to apply the regulations approved with the Autonomous Community in which the highest value of the assets and rights are located. If there are no assets or rights in Spain, each taxable person (heirs) will apply the regulations of the region in which they reside.
- Deceased person resident in a specific region: the non-resident heirs will have the right to apply the region regulations in which the deceased resided.
- Donation of real state located in Spain: the person receiving the donation will have the right to apply the region regulations approved where the real estate is located, even in the case of being non-tax residents in Spain.
- Of real state located outside of Spain: the person receiving the donation will have the right to apply the region regulations approved in the region where they live.
- Of other assets located in Spain: non-resident individuals receiving the donation will have the right to apply region regulations where the asset has been located a greater number of days of the period of the five immediately preceding years, counted from date to date.
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