Increasing mobility within Europe means that a growing number of inheritance cases have a cross-border dimension. People resident abroad frequently leave assets in Spain, such as holiday properties or investments. The situation becomes particularly complex when the surviving heir is not a spouse but the partner in a registered civil partnership or civil union established abroad.
A recent ruling by Spain’s National Court (Audiencia Nacional) addresses precisely this issue and sends an important signal regarding the tax treatment of cross-border inheritances in Europe.
The Case: A British Civil Partnership and a Property in Mallorca
The proceedings arose from circumstances that are becoming increasingly common in practice. The deceased was a British national resident in the United Kingdom. He and his partner had entered into a civil partnership under the UK’s Civil Partnership Act 2004, duly recorded in a public register in the United Kingdom.
The estate included, among other assets, a co-ownership interest in a property in Pollensa, Mallorca.
Following the deceased’s death, the surviving partner was required to pay Spanish inheritance tax. Because the Spanish tax authorities did not recognise the British civil partnership as comparable to marriage, the heir was placed in the least favourable kinship category for tax purposes. This resulted in a tax liability of approximately EUR 31,945.
The heir subsequently requested that the tax return be rectified. He argued that he should be treated as a spouse for tax purposes and should therefore be entitled to the considerably more favourable tax benefits available in the Balearic Islands. On that basis, the tax due would have amounted to only approximately EUR 2,174.
What Was the Problem?
Spanish inheritance tax has a particular feature: although it is a national tax, many tax reliefs and allowances are governed by the autonomous regions.
In the Balearic Islands, regional legislation provides that registered civil partners may receive the same tax treatment as spouses. However, this is subject to the partnership having been established in accordance with Balearic law and entered in the Balearic Islands’ register of civil partnerships.
This was precisely the problem. The British partners were not, of course, registered in a Balearic register. Nor could they have registered there, as they did not reside in the Balearic Islands.
The tax authorities therefore took the view that the surviving partner could not receive the same tax treatment as a spouse.
The Key Question: May a Region Require Registration in Its Own Register?
The fundamental question before the court was whether an autonomous region may make access to tax benefits conditional on a partnership being entered in a particular regional register.
Put differently: is it compatible with European Union law to deny a person tax benefits even though that person can prove the civil partnership by means of an entry in a public register of another European country?
The National Court answered this question with a clear no.
Infringement of the Free Movement of Capital
The court based its decision on the case law of the Court of Justice of the European Union. According to settled case law, inheritances with a cross-border dimension fall within the scope of the free movement of capital under Article 63 of the Treaty on the Functioning of the European Union (TFEU).
A national or regional rule may infringe this freedom if it results in comparable cross-border situations receiving less favourable tax treatment than purely domestic cases.
In the court’s view, the persons concerned were in objectively comparable situations:
- Both partners had entered into a legally recognised and publicly registered civil partnership.
- The partnership had been validly established under the applicable law of a European country.
- The only difference was that the partnership had been registered in the United Kingdom rather than in the Balearic Islands.
The court found no objective justification for this difference in treatment.
Support from the Spanish Constitutional Court
The National Court’s reasoning is also supported by the case law of the Spanish Constitutional Court.
In an earlier ruling, the Constitutional Court had already held that treating civil partnerships differently solely because of the place in which they were registered may breach the principle of equality. That case also concerned the refusal of tax benefits because the partnership had not been entered in the register required by the region in question.
The recent ruling consistently follows this line of reasoning and applies it to cross-border situations.
Primacy of European Union Law
The court’s clear statement regarding the primacy of European Union law is particularly noteworthy.
Although direct taxation remains, in principle, a matter for the Member States, national and regional rules must nevertheless comply with the fundamental freedoms of the European Union.
Where a regional rule is incompatible with European Union law and cannot be interpreted in conformity with it, the rule must be disapplied.
That is precisely what occurred in this case. The National Court annulled the contested decision and ordered the tax authorities to refund EUR 29,771, together with late-payment interest.
Significance for International Estate Planning
The practical significance of the ruling extends well beyond the individual case.
Many citizens of other European countries own property or other assets in Spain. At the same time, alternative forms of partnership, including registered civil partnerships and civil unions, have become established in many countries.
The ruling makes clear that the absence of an entry in a particular autonomous region’s register must not automatically result in tax benefits being denied. The decisive question is instead whether the partnership is legally recognised in its country of origin and has been validly entered in a public register.
For those affected, this opens up new possibilities for claiming the same treatment as spouses for Spanish inheritance tax purposes.
Potential Impact on Inheritance Cases Already Settled
The decision is particularly relevant to individuals who have already paid inheritance tax in Spain.
Where equal tax treatment was refused solely because the partnership had not been entered in the register of the autonomous region concerned, it may be advisable to review previously filed tax returns. This applies in particular to cases that are not yet time-barred.
Depending on the circumstances, substantial tax refunds may be available.
Conclusion
The National Court’s ruling strengthens the rights of civil partners in cross-border inheritance cases and underlines the importance of the European Union’s fundamental freedoms in tax law.
The decision shows that tax treatment must not depend solely on where a civil partnership was registered when the underlying legal situation is otherwise identical. For international families and cross-border wealth structures, this provides greater legal certainty and better opportunities to challenge discriminatory tax burdens.
It remains to be seen whether this approach will become settled case law, as review by higher courts is still possible. Even at this stage, however, it is clear that the ruling may have significant implications for international estate and wealth planning involving Spain.