Law in Spain

Following the judgement by the EU Court of Justice on the 3rd September 2014 the way in which Non- Residents were treated for Inheritance Tax was dramatically changed.

Until this judgement was made, citizens of the European Union were taxed in Spain for inheritance tax according to the relevant state law, without being able to apply the regulated reductions applicable in the tax payable calculations prevalent in the autonomous community where the deceased was residing when they passed away or where their properties, assets and rights were located which were then passed on to their beneficiaries.

Additionally, those living in Spain who received assets or rights located overseas, either by inheritance or donation, were also taxed in Spain in accordance with a tax treatment which was discriminatory in comparison to the way in which non-residents were taxed.

The Court declared that this inequality was contrary to European Community law and thus enabled those EU citizens who had paid taxes under this unfair framework to claim back the excess tax paid.

Who qualifies to make a claim for a  refund?

Non-resident taxpayers who are citizens of the European Union may claim back in any of the following cases:

- When the claimant is resident in Spanish territory and has non-resident heirs who were taxed in Spain by the application of state regulations.

- When there were donations of property or other assets located in Spain made to non-residents.

In addition, Resident taxpayers may claim a refund in the following cases:

- When the deceased was not resident in Spain, and their Spanish heirs were taxed under the State regulations.

- When there was a donation of property or other assets located outside of Spain in favor of a Spanish resident.

How can the Inheritance Tax be claimed back?

There are two possible ways to reclaim the excess tax paid:

- Rectification of tax returns, applying appropriate reductions and regional bonuses and requesting the refund of the resulting excess tax paid plus default interest backdated to when the tax was paid, up to a maximum of the previous four years (period of prescription).

And if the tax was paid prior to this four year period they may make a claim for damages against the state, demanding compensation for damages for having levied the tax which does not conform to European Community law standards.

Recently the timescale for making a claim was changed. It used to be that the claim needed to be made by the 31st December 2014. But this time limit has now been lifted and claims can be made indefinitely.

So if you or anyone that you know paid inheritance tax prior to 31st December 2014 and feel that you may have been discriminated against in this way, then do not hesitate to contact us. We will check if you have a valid claim and guide you through the process.

Law 20/2015 supposedly includes more safeguards for the buyer. While under the existing law Bank Guarantees have to be in place to guarantee the amounts paid in advance by buyers and a special account has to exist for depositing these amounts, as from the 1st January 2016 the guarantees will now have to cover not only the advance payments, but the taxes and legal interest as well, which is indeed an improvement, because taxes were not previously included.

Another important change is that made to the Building Law and the putting in place of the protection of the amounts paid on account/in advance from the date on which the building license (planning permission) is granted, whereas previously, there was no such time limit. The problem is that most of the contingencies that lead to delays in the construction of a property happen before the building permission is granted. Law 57/1968 did not state a date but referred to the need to have guarantees "before starting construction, in favour of the buyer." Under the previous legislation it was understood that the amounts paid on account had to always be guaranteed.

Under the new law, in order to be able to open a restricted bank account, the amounts that will be received by the promoter must be guaranteed in advance, so therefore, the building permits for the development must have already been obtained.

In our opinion, this law doesn’t protect buyers who pay amounts of money prior to the building permit being granted, which is a very common situation at the outset of any building project. The most recent case law has been very protective and zealous towards the consumer’s rights, holding the banks and insurance companies responsible to the buyer if they had not issued insurance or a guarantee, however, in practice, our recommendation would always be to not pay any amount in advance until:

• The developer has the building permit
• A bank guarantee or an insurance policy is issued
• The special bank account is opened

The new changes in the law also affect legal proceedings for claims against insurers or credit institutions which fail to act in an executive and efficient manner and making what would normally be an ordinary process into a longer, slower and more complex process, having had an initial, credible demand from the promoter, which, if not resolved satisfactorily within 30 days, would then open the door to a claim against the guarantor institution.

In addition, the deadline for making a claim was reduced from 15 to 2 years which seems a term not susceptible to disruption i.e. that would expire.

In any case, and even with the most pessimistic comments, we believe that strict compliance with the law should not cause any harm to home buyers. To achieve this, additional criteria for the responsibility of banks should be established. Before obtaining the building license, banks should be responsible together with the promoter for the amounts paid in to the restricted bank account and after the granting of the license for sums advanced, which should be guaranteed by the financial institution, that in turn, would release the funds in the restricted account as needed for construction.