Non-Residents have the right to apply regional regulations in the inheritance and gift tax

The difference between a tax option and a right of choice is crucial. A tax option can only be modified within the regulatory declaration period, while a right of choice allows rectification within the broader prescription period.

The second additional provision of Law 29/1987 on ISD states that, in the case of acquiring goods and rights by inheritance, if the deceased had been a resident in a member state of the EU or the EEA, the taxpayer may apply the regulations of the Autonomous Community where the highest value of these goods is located. If the deceased had no assets in Spain, the taxpayer applies the regulations of their residence.

On the other hand, article 119.3 of Law 58/2003, General Tax Law (LGT), establishes that tax options must be exercised, requested, or waived when filing the declaration. These options cannot be rectified after that moment unless within the regulatory period. However, the LGT and its regulations do not define "tax option," though article 119.1 LGT does define "tax declaration." This lack of clarity should not create unfavorable legal or economic consequences for taxpayers, who are entitled to the guarantees established in article 3.2 LGT. Regulatory uncertainty cannot harm the taxpayer.

To address this, the National Court, in its Administrative Chamber 3299/2024, identified two criteria for determining tax options:

1. The existence of an alternative choice between different and mutually exclusive tax regimes established by regulations.
2. The taxpayer’s free will, reflected in their declaration or self-assessment.

When a taxpayer exercises an autonomous right explicitly granted by law without alternative mutually exclusive regimes, it is not a tax option. The ISD regulation grants taxpayers the right to apply regional rules. This right is not subject to temporal limitations other than the prescription period for rectifying self-assessments.

Consequently, the second additional provision of the ISD Law governs a right, not a tax option. Taxpayers are not bound by the restrictions in article 119.3 LGT. If a taxpayer mistakenly applies state regulations in their ISD self-assessment but is within the prescription period, they retain the right to apply the relevant Autonomous Community’s regulations. They may also request a refund of undue payments if applying regional rules results in a lower tax liability. 

Javier Ortega has a degree in Business Management from the University of Malaga. With over 23 years of experience, he specialises in accounting and tax consultancy for individuals and companies across various sectors. He continuously enhances his expertise.