The Spanish inheritance and gift tax is a national tax but the Spanish Government transferred it to the regional bodies (autonomous communities), who have autonomy to legislate and collect the tax. The autonomous communities have legislated a number of tax benefits that are applicable to taxpayers, resident in their regions.
The key point is that most of the Autonomous Regions have introduced tax benefits to their residents, i.e. in the Balearic Islands (Mallorca, Ibiza or Menorca) the inheritance transfers between immediate family members, if they are residents, are taxed with a maximum of 1% up to 700,000 €.
The problem is when we are talking about non-Spanish residents because the tax is not transferred to the regional bodies and the state rules apply without the said benefits. This implied that in the past a person who was not resident in Spain was paying a higher Inheritance tax than a person who was resident in that country. This was clearly a discrimination within the EU and many groups of affected individuals and professionals complained before the EU Courts.
In 2007 the European Commission sent a warning to Spain about a potential incompatibility between the Spanish inheritance and gift tax rules with Articles 21 and 63 of the TFEU and Articles 28 and 40 of the EEA. The Commission formally requested Spain on the 5th May 2010 and 17th February 2011 to take action to ensure compliance with EU rules. As Spain failed to take action, the Commission decided to take Spain to the CJEU and the European Court of Justice declared in its Decision dated 3th of September 2014 that this legislation breached the free movement of capital and it was contrary to the European laws. Spain was therefore forced to amend its legislation in that way.
Knowing that at present the inheritance or gifts between non-Spanish residents have the same benefits that residents have, the key questions are:
What about the taxes already paid by non-Spanish residents before that European Decision? Can we claim a refund for the excessive taxes?
The effects of the CJEU Decision 3/9/14 are not temporary limited and therefore if your clients have paid the inheritance or gift tax in Spain as a non-resident they should be able to claim for the reimbursement of the excess paid with interest.
We would recommend contacting a Spanish Lawyer to review the Inheritance or Gift taxes already paid in Spain before September 2014, and more importantly, if you are going to pay taxes in the following months, a Spanish Lawyer will also help you to decide the best way to minimise taxes, without the need to appeal for a refund.
On the other hand, we would also recommend you, when buying in Spain, to consider the different tax rates and take into account the different regions and their tax rule, before deciding where to buy. We all know that laws can change, but why do not take this into account if it can help to save some money?