On the 1st of January 2015 came into force the Law 26/2014, of 27 November, which modifies Law 35/2006, of 28 November, on Personal Income Tax, the rewritten text of the Law on Personal Income Tax of Non-residents, passed by Legislative Royal Decree 5/2004, of 5 March, and other tax regulations, which provides an important amendment on the Inheritance Tax, applicable to non-residents whose residence is in the European Union (EU) or European Economic Area(EEA) country. This amendment is due to the necessity of aligning the tax legislation with the provisions of the European Court of Justice Judgement of 3 September 2014 (case C-127/12) and regulating the winding-up declaration of taxpayers to be paid to the State Tax Administration. As a result of the said judgement there were introduced a series of rules that allow the comparison of treatment in the tax on inheritance between the deceased resident and non-resident in Spain, and between the legal successors resident and non-resident in Spain. Therefore, at the time the non-resident successors pay the inheritance tax, the same legislation will be applied to them as it would be if they were successors resident in Spain.

The inheritance tax is levied on capital gains earned without consideration by a natural person. It is a tax that is required throughout the Spanish territory, but it is important to keep in mind that, despite being a state tax governed by the state legislation which establishes who, where and under what legislation you should be taxed, the Autonomous Communities have regulatory authority that allows them to regulate aspects such as the tax rate, share deductions and allowances, etc. On this basis, 20 legal regimes on Tax Inheritance exist in Spain.

The element to be taken into account in determining the tax fee that should be paid is the residence of the deceased and the legal successors’. According to where their permanent residence is either state or autonomous legislation shall apply.

However, the Second Additional Provision to Law on Inheritance Tax states in its wording:

“The tax settlement applicable to the acquisition of goods and rights by any lucrative title in the cases provided below shall comply with the following rules:

a) In the event of acquisition of goods and rights by way of inheritance, legacy or by any other successive title, if the deceased was resident of an EU or EEA Member State, different from Spain, taxpayers shall be entitled to the application of the legislation adopted by the Autonomous Community where the greater value of goods and rights of the assets belonging to the state located in Spain is. If there were no goods or rights located in Spain, each taxable person shall be subject to the legislation of the Autonomous Community where they live.

b) In the event of acquisition of goods and rights by inheritance, legacy or by any other successive title, if the deceased had been a resident of an Autonomous Community, the non-resident taxpayers, but residents of and EU or EEA Member State, shall be subject to the legislation adopted by the said Autonomous Community.

It is clear from the foregoing that in order to establish the applicable law in terms of inheritance we need to distinguish between the following assumptions:

i. The deceased permanent residence was outside Spain, in EU or EEA Member State, we distinguish:
a. If the goods that constitute the inheritance are in Spain, it shall be applied the legislation adopted by the Autonomous Community where the greater value of goods is.
b. If the goods that constitute the inheritance are outside Spain, each successor shall be subject to the legislation adopted by the Autonomous Community where they live.

ii. The deceased permanent residence was in Spain but the successors live in EU Member State. In this case the legislation that shall apply is the one adopted by the Autonomous Community where the deceased lived.

It is important to point out that if the deceased or the successor, any of them, is not resident in an EU or EEA Member State, they shall not be affected by this new amendment of the Inheritance Law. Therefore, state regulation shall apply.

Given the scale and novelty of the amendment, many doubts have been raised concerning retroactive effects of this new Law. Our advice is to consult a lawyer, specialist in the field of inheritance, in order to make an individual study of your case. Nevertheless, we can say in broad terms that even though the Law came into force on the last 1st of January, those taxpayers to whom this modification applies, and who paid taxes in accordance with the state regulations, are entitle to claim back any sum unduly paid if the pre-registration period has not elapsed (4 years from the date of deposit). If these deposits were made over 4 years ago, you can claim the unduly paid sums through the State patrimonial accountability within 1 year under the Law No. 30/1992 of 26 November on the legal regime for public authorities and common administrative procedures (Ley 30/1992, de 26 de noviembre, de Régimen Jurídico de las Administraciones Públicas y del Procedimiento Administrativo Común) from the 3rd of September 2014, publication date of the judgement of the European Court of Justice.