Charities, the EU and Spain- Tax differences

On the 10th February, the European Court of Justice issued an important Judgement in connection to the tax treatment to Charities within the UE in respect of Inheritance Tax. 

The Judgement is a response to the current variety of regulations within the Union in connection to Inheritance taxes and more particularly to Charities. In this specific case, a Belgian national appointed a German Charity as heir of her estate. Belgium laws grant attractive tax allowances to charities in respect of assets acquired via an inheritance but this only applies to charities domiciled in Belgium or in the deceased’s country of domicile. This treatment is clearly unfair and the aforementioned Judgment stated that the Belgian laws contravene article 63 of the Treaty of the Functioning of the European Union, as this implies a restriction to the free movement of capital within the state members.

This Judgment is extremely positive because it implies that European charities inheriting assets in another state member can benefit of the same allowances as the equivalent resident charity would do. However, this is of little help with my beloved country of origin. As some of you may know, Spain makes no allowances to Spanish charities when inheriting assets. On the other hand, UK Charities are usually Inheritance Tax exempt. This means that any UK charity inheriting assets in Spain will be tax exempt in the UK but will face an Inheritance tax bill in Spain.

In light of this, it may not prove convenient to leave in a will a Spanish asset to a UK charity because the latter will be charged quite heavily. Furthermore, there might be some legal problems to transfer the title over the asset as Spanish law does not recognise trusts and most UK charities are formed through a Trust.

As usual, proper legal guidance is advisable prior to leaving an asset in Spain to a UK charity through a will as there might be more legal and tax efficient ways to transfer the assets to the desired beneficiary.

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