Spanish Inheritance Tax Refund
The Spanish government is being forced to repay millions of euro to overseas property owners who were hit with punitive Spanish inheritance and gift tax charges. The tax charges, which often amounted to as much as a third of the property value, have been levied on thousands of foreigners inheriting property and receiving it as a gift over the years. If you have paid you may well be entitled to a Spanish Inheritance Tax refund.
The right to recover overpaid Spanish inheritance and gift tax is based on the September 2014 judgement by the European Court of Justice declaring that Spanish inheritance and gift tax laws were discriminatory towards non-Spanish residents and therefore against the EU Treaty. The Spanish Authorities are now being forced to repay the inheritance tax paid by non-residents (you can find the appropriate ECJ ruling on the European Union Law website at http://eur-lex.europa.eu by searching for ‘2014/C 395/03’). The ruling applies to mainland Spain as well as Spanish owned island groups such as the Balearics (Mallorca, Ibiza, etc.) and the Canaries (Tenerife, Gran Canaria, Lanzarote, etc.).
Under the law applicable in Spain at the time, Spanish residents qualified for tax exemptions, but owners living abroad had to pay the full amount within six months of inheriting the property. In some areas of Spain up to 99pc of the deceased’s assets can be exempted from inheritance tax if the inheritor is a Spanish resident. For foreigners this would require living in Spain for at least five years prior to the inheritance. The general allowance for non-residents is just €16,000, even for a spouse or children. This left many overseas owners with a very significant tax bill on receipt of the property.
During the period from 1995 to 2008 the Irish were among the most active purchasers of property in coastal Spain, so a lot of Irish property owners have been affected.
There is no automatic right to the reimbursement of the overpaid inheritance or gift tax. An inheritor or gift recipient must file a claim with the Spanish authorities to have the overpayment refunded.
The average reclaim is estimated to be in the region of €30,000. Because it is an overpaid tax the Spanish government is also obliged to pay interest on the over-payment. It is estimated that the Spanish authorities would have to foot a bill in excess of €500m if all those entitled to claim did so. It is likely, however, especially with a dwindling timeframe, that the actual payout will be much less than this.
It is difficult for bereaved families to receive a significant unexpected tax bill for an asset which they may not have wanted in the first place. In many cases it has resulted in the sale of the property because the recipients were not in a position to pay the tax.
Anyone who has paid Spanish inheritance or gift tax in the four years prior to January 2015 can claim back all the overpaid tax. There are a couple of caveats. Firstly, this ruling is now widely known in Spain, which has led to a slew of companies offering their services. Not all of them are reputable and some of them aren’t very good at the process.
Secondly, filling in Spanish tax reclaim forms and filing them is pretty complex even if you are fluent in Spanish. There is no single form to be filled in, it involves the completion and submission of a range of documentation. It is a task that should only be undertaken by a legal expert specialising in the area.
You should also remember that you can make a claim only once, so it needs to be done correctly, there are no second chances. Where successful, claims will generally be fulfilled within 6 to 8 months of the filing date.
If you wish to file a claim you must fulfill the following criteria:
- Deceased or inheritor a non-resident of Spain
- Tax paid within 4 years of January 2015.
- Direct descendent to the deceased i.e. spouse/grandparent/parent/child/grandchild. Siblings do not qualify.
- Usually a minimum tax payment of around €4,000 will be required in order for the claim to be worthwhile for the reclaim company.
A company specialising in inheritance and gift tax reclaims should offer a free analysis of your case to see if it qualifies for a refund. If your case is taken on the company should also do so with no up-front fees and on a ‘no win, no fee’ basis, but not all companies do so. Reclaim companies can do this because, once the criteria are met, applicants should be 100% successful in reclaiming the overpaid tax. Payment for the service is received as a proportion of the amount recovered for the client.
If you would like further information drop an email to info@SpanishReclaims.com or call one of the numbers above.