Changes To Spain’s Inheritance And Gift Tax Law

Raymundo Larraín Nesbitt, February, 21. 2015

Regular legal-contributor Raymundo Larraín Nesbitt examines the legal impact in Spain on matters such as non-resident taxation and inheritance tax brought about by the key ruling of the European Court of Justice (ECJ) from last 3rd of September 2014 (Case C-127/12).

By Raymundo Larraín Nesbitt
Lawyer – Abogado
21st of February 2015




European Court of Justice. Photo credit: Cédric Puisney



Continuing the trend set out last month on Succession, I think it was long overdue I wrote an article on the ECJ’s landmark ruling of last 3rd of September 2014. The legal repercussions, on the wake of this ruling, have rippled wide and deep across Spanish law; particularly regarding non-resident taxation. For this article’s sake the most prominent change is Law 26/2014 of the 27th of November which amends, amongst other laws, the Personal Income Tax Act (I.R.P.F.), the Non-Resident Income Tax Act (I.R.N.R.) and the Inheritance and Gift Tax Law (Impuesto de Sucesiones y Donaciones, I.S.D. for short). These changes came into force on the 1st of January 2015. I had already referred to them fleetingly in December’s article Taxes on Selling Spanish Property.

Law 26/2014 adapts the decision taken by the ECJ amending internal Spanish national laws. In a nutshell, amongst many other changes that escape the goal of this article, it puts an end to (fiscal) discrimination between residents and non-residents in a wide array of matters; most notably on inheritance and gift taxation.

If you are looking for in-depth articles on Spanish Inheritance Tax please follow these links: 


For the purpose of this article, when I make reference to ‘non-tax residents’ I will always be referring to citizens which are either tax resident in another Member State of the European Union or else in the European Economic Area (E.E.A.). Just to clarify, the below-listed changes do not benefit tax residents outside of the EU or EEA.

I will now, as briefly as I can muster, highlight the major changes.

Succession – Situation Prior to the ECJs’ Ruling

To better understand the scope and wide impact of the legal changes it is necessary for me to digress and explain what the existing situation was prior to the ECJ’s ruling.

Basically there were two sets of allowances on inheritance tax; one set out by rigid state law, which is the common regime and is applied nationwide subsidiarily, and another more indulgent regional one set out by each of Spain’s seventeen Autonomous Communities. Broadly speaking, state law applied to non-tax residents by default in all cases. Regional tax laws applied to residents by default.

State law is hands down more unforgiving and decisively less lenient than regional tax allowances which only applied to (tax) residents. Non-tax residents were forced to follow state inheritance law regardless of where the estate was located in Spain.

Spain is divided administratively into seventeen Autonomous Communities. Each of these have devolved competencies on Inheritance tax matters up to a certain point and may apply generous deductions to the point that Inheritance and Gift tax is almost suppressed in some Autonomous Communities. Making a sweeping generalisation, and just to make things clearer to understand, Spain is divided broadly in communities ruled by centre-right and centre-left wing parties. Their ideological spectrum directly impacts on taxation.

On the one hand, Autonomous Communities ruled by centre-right wing parties (i.e. Partido Popular) have generous tax provisions in place almost suppressing inheritance and gift tax i.e. Madrid, Basque Country, Navarre, Valencia, Balearic and Canary Islands. You can read further in-depth on the matter in my article Making a Spanish Will from 2012.

On the other hand, you have autonomous regions led by centre-left parties (or left-wing) which, coherently with their ideology, not only do not apply generous regimes to succession but even penalise it furthermore as they firmly believe wealth ought to be ‘redistributed’.

This is the ideological trench warfare in which non-tax residents are parachuted in being caught in the crossfire. Non-tax residents were, until the ECJ’s ruling, unfairly barred from taking advantage from the generous regional tax allowances which were only reserved to residents and significantly improved upon those set out by state law.

A non-tax resident beneficiary of a deceased’s Spanish estate followed the general state law on inheritance and the inheritance was directly dealt with from Madrid (centrally as opposed to regionally in the case of tax residents). This was irrespective of in which of the seventeen Autonomous Communities had the deceased passed away or where the majority of his assets were held. In other words, non-tax residents were being discriminated as, unlike tax residents, they could not take advantage of the generous tax provisions which almost suppressed inheritance tax in some Autonomous Communities.

This was clearly incompatible with the founding principles and self-admitted goals of a European Union which vies to create a single economic and political space posed to compete in equal footing with the US, China and other major rising superpowers.

Post-ECJs’ Ruling – Changes to Spain’s Inheritance and Gift Tax Laws

The European Commission, through the ECJ’s ruling of 3rd of September 2014, ended all discrimination and forced Spain to amend its internal laws and accommodate the European principles on which the EU is based on.

As an example of such changes, Spain’s Constitutional Tribunal (Tribunal Constitucional) has annulled in March 2015 a part of Law 13/1997 relating to inheritance tax (ISD or IHT) from the Autonomous Community of Valencia when it states that only residents with habitual residency in said Autonomous Community can benefit from the lenient tax allowances on inheritance procedures (decisively more generous than state law as it allows an allowance of up to 99% for next-of-kin beneficiaries, Groups I and II). The Constitutional Tribunal has quashed this and stated that these allowances also apply to non-residents in the Community of Valencia (STC 3337/2013, from the 18th of March 2015). The effects of this ruling are ‘pro futuro’; going forward. It doesn’t affect closed matters.

Without further ado the changes brought about by Law 26/2014 (third final disposition):


I. Inheritance Rules


a) Deceased is non-tax resident. If the deceased was resident in a Member State of the European Union or else in the European Economic Area (non-tax resident in Spain) the beneficiary will now benefit from:

• The regional tax allowances where the majority of the assets of the deceased are located in.
• If there are no assets in Spain, the rules of the Autonomous Community where the beneficiary lives apply.

b) Deceased is tax resident and beneficiary is non-tax resident. If the deceased was resident in Spain and the beneficiary is resident in a Member State of the European Union or else in the European Economic Area (non-tax resident) he will benefit from:

• The regional tax allowances where the deceased lived.


II. Gift Rules


a) Immovable property located in Spain (i.e. real estate). If a non-tax resident is donated an immovable asset (located in Spain) he will now be entitled to the regional tax allowances of the Autonomous Community where it lies.

b) Immovable property located outside of Spain (i.e. real estate). If a tax resident is donated an immovable asset located in a Member State of the European Union or else in the European Economic Area, other than Spain, he will be entitled to the tax allowances of the Autonomous Community where he lives in Spain.

c) Movable property located in Spain (i.e. a painting). If a tax resident in a Member State of the European Union or else in the European Economic Area is gifted a movable asset located in Spain he is entitled to apply the tax allowances and gift rules of the Autonomous Community where that asset spent most of the days during the previous five years.

Consequences of the Changes in Inheritance and Gift Tax Laws

When one of the parties is non-tax resident in Spain the above-mentioned changes will bear a dramatic impact on the beneficiary’s taxation; significantly decreasing or even suppressing the tax altogether providing the estate is located in one of the Autonomous Communities outlined above with generous allowances on inheritance and gift taxation. In other words, for clarity’s sake, a beneficiary stands to pay much less now under this new law as from the 1st of January 2015.

For those who are non-tax resident in the E.U. or E.E.A. there are no changes. State law still applies to them unabated.

Changes to Spain’s Inheritance and Gift Tax Law – Conclusion

This is a welcome respite and much-needed change. Kudos to European lawmakers. It made little to no sense to discriminate against fellow EU-members. The previous regulation clearly undermined the principles in which the European Union is firmly grounded upon. Member States must all row as one if the Union is to stand. Or we all become one thing or all the other; but not both. Spain can’t have it both ways.

A house divided against itself cannot stand” – Abraham Lincoln.

American 16th US President (1809 – 1865). He resolutely ensured a pro-union victory and brought about the emancipation of slaves.

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