Families and loved ones of expats living in Spain should no longer have to pay higher death taxes than the Spanish.
The European Court of Justice has demanded the Spanish government change tax rules and charge all European Union nationals the same rate of inheritance tax.
Judges ruled that the Spanish government was discriminating against expats and that they could see no reason why different nationalities should pay higher rates of tax.
Spain is among the European countries with the most EU national expats.
They make up around one in eight of the population and mostly come from Britain, Romania and Morocco.
Many are also from Germany, Denmark, the Netherlands and Scandinavia.
The Spanish government has been fighting the case through the European court since 2012, when the European Commission sent the case for judgment after deciding the law was outside the principle of freedom of movement of people and money within the EU.
Inheritance tax rates are not laid down in national legislation in Spain, but managed at regional level.
Regional governments are free to apply much higher rates of tax to inheritances to non-Spanish residents than nationals.
The national government has announced a review of the legislation to change the rules in line with the judgment.
“We are looking at the court papers and considering what we can do,” said a Budget Ministry spokesman. “However, at this time we are not sure what or when any changes will come into force.”
The ruling also paves the way for expats who have paid inheritance tax at the higher rate to go back to the government and demand compensation.
At this stage, the Spanish government has not issued any figures detailing how many expats may be affected nor how much compensation expected to be repaid.
Spain did slightly adjust inheritance laws to appease the commission’s criticism, but has been slow to bring the tax rates into line.
Spain has also faced much criticism from expats and the EU over other discriminatory taxes and laws affecting foreigners, especially relating to property ownership.
Many expats have faced difficulties over their title to properties and the legality of planning permissions which have led to legal disputes with municipal and regional governments.
Spain is also under fire for demanding payments for healthcare from expats which is considered a free service under EU law.