Obligation of Heirs When the Deceased Resided Outside of Spain
As is well known, when a person resides and dies outside of Spain and owns assets such as real estate, shares, or bank accounts, the heirs are required to settle the Inheritance Tax using the STATE model 650, which can be downloaded from the website of the Spanish Tax Agency (Agencia Estatal de la Administración Tributaria). This does not refer to the model 650 used in the Autonomous Communities.
Errors in the Tax Agency’s Software
Based on our extensive experience, we have noticed that the Spanish Tax Agency’s software for the model 650 Inheritance Tax contains a flaw that results in consistent overpayment.
The Error in Calculating Household Goods (Ajuar Doméstico)
One of the items that forms the TAX BASE for Inheritance Tax is household goods (ajuar doméstico), calculated as a percentage of the estate. The Spanish Supreme Court has repeatedly ruled that household goods may only be calculated based on the value of the main residence, and not on other assets such as rural properties, rented properties, bank accounts, shares, or deposits.
However, the Spanish Tax Agency’s software for model 650 Inheritance Tax does not make this distinction and calculates household goods on all assets, including rural properties, rented properties, and financial products. This forces taxpayers to overpay. There is no way to calculate the household goods correctly, unlike in some Autonomous Communities’ version of model 650, where items that cannot be considered part of the household goods are automatically excluded.
We are talking about significant sums, especially in cases where no allowances can be applied—such as inheriting from a non-relative—or where limited allowances apply, like inheriting from a sibling.
Funeral and Last Illness Expenses: Valid Deductions
Another issue that taxpayers often overlook is the expenses that can be deducted. The law allows the deduction of funeral expenses. When a person dies abroad, such expenses may be incurred.
Spanish law does not prevent the deduction of burial expenses incurred outside Spain. Funeral expenses can include both the cost of the ceremony and the travel expenses incurred by the family to attend the burial abroad.
The same applies to final illness expenses. If the deceased underwent medical treatment abroad that, for example, was not covered by insurance, such expenses could also be deducted from the tax.
The Reference Value and Its Potential Unconstitutionality
Finally, attention must be paid to the reference value, which is currently under review by the Constitutional Court and may be declared illegal. This value can be higher than the market value or the actual condition of the property, which would make it unconstitutional.
What Can Be Done: Requesting a Refund for Overpayment
In this situation, what heirs and taxpayers must do is request a refund of undue payments from the state. This refund should include the excess amount paid and interest accrued since the date of the overpayment.
This procedure is initiated with the tax administration authorities and allows for a review of the Inheritance Tax declarations, model 650, submitted to the Spanish Tax Agency within the last four years.
This is a process that must be carried out in writing, arguing the incorrect calculation of the tax base.