Brexit could impact on the taxes that UK national have to pay in Spain, and one of the biggest impacts would be on inheritance tax.
In 2014, the European Court of Justice issued a sentence that made it illegal for Spain to charge European Union residents more than Spanish nationals or residents in inheritance tax.
This Judgment was the consequence of a lawsuit lodged in 2011 by the European Commission, which considered that non-residents in Spain were paying more taxes than residents because residents could use the taxation reliefs from the different regions of Spain (“Comunidades Autónomas”) whereby non-residents could not.
In the opinion of the European Commission, there was discrimination within the Spanish taxation system, and it was against the Treaty for Free Movement of Goods inside the EU and against the Agreement of the European Economic Space.
International lawyers in Spain helped many non-residents not only reduce the taxes that they paid but also claim back the overpaid taxes already paid in the previous four years, including inheritance tax and donation tax.
We considered this to be an important improvement and necessary modernization of the Spanish taxation system, making it fairer and clearer to all taxpayers in Spain.
Could Brexit change all this again?
If the free movement of citizens is removed and European regulations no longer apply to British nationals, this could impact on the taxes that UK nationals must pay when residing in Spain.
One of the biggest impacts will be on inheritance tax.
British nationals within the Eurozone at the moment have exceptional tax benefits in inheritance procedures, compared to those living outside of Europe (for example Canadians, Americans and Australians). With Brexit, these exemptions may be removed.
The inheritance of a property in Alicante, for example, has a declared value of 299.000,00 € and is inherited by 2 children. The inheritor living in the UK would be protected by the aforementioned European Court of Justice sentence and would not pay any inheritance tax. The other child living outside of the Eurozone would have to pay more than 18.000,00 € in inheritance tax.
Neither child would be protected by the European Court of Justice, resulting in both children having to pay more than 18.000,00 € EACH in inheritance tax.
As you know, it all depends on a political decision and we will need to wait and see how this situation is resolved in the near future by the Governments.
We always recommend seeking independent legal advise and do tax planning trying to see all possible scenarios. It is very important that all your concerns are properly dealt with and discussed with your lawyer to be able to get the best legal and tax advise.