A full rebate is granted on acquisitions because of death, including those arising from agreements relating to succession.
On July 18, the Governing Council of the Balearic Islands passed a decree law—Decree-Law 4/2023 (“DL 4/2023“)—that significantly changes the inheritance and gift tax (IGT) rules under Legislative Decree 1/2014, of June 6, which consolidates the legal provisions of the Balearic Islands Autonomous Community on taxes transferred by the central government.
Up to the entry into force of this amendment, only inheritance received by resident taxpayers included in group I (i.e., descendants aged under 21 years) benefited from a 99% rebate.
DL 4/2023, which comes into force from July 18, 2023, provides for a 100% rebate of the IGT payable on acquisitions as a result of death (and, by equivalence, under agreements relating to succession) when the beneficiaries are descendants of any age, spouses and ascendants (relatives included in groups I and II).
The most important innovation is the elimination of Inheritance Tax between parents and children, grandchildren and grandparents, and between spouses, both in the event of death and in the case of inheritance during life through inheritance agreements. The elimination takes place with a 100 percent reduction on the tax liability. A 50 percent allowance has also been introduced for siblings, uncles, aunts and nephews and nieces. Initially, these allowances only applied to personally liable taxpayers, i.e., residents in Spain. However, Law 11/2023 of 23rd November extended the scope of application to non-resident taxpayers who are subject to limited tax liability on real estate. In this way, possible unequal treatment of taxpayers is eliminated and harmonized with Community law.
In this regard, it should be noted that, in the event that real estate is acquired, the value of the real estate acquired must be stated in the corresponding public deed, which may not exceed the real value in each case.
The regulation itself indicates that the value of the property will be estimated on the basis of the reference value of the real estate cadastre. Consequently, in those cases in which the reference value is lower than the real value of the property, it is advisable to analyse the application of the allowance, since the PIT taxation could skyrocket in the event of a future sale.
The tax allowance is applicable to both residents and non-residents.
In addition, it has also been approved the elimination of Real Estate Transfer Tax on the purchase of the first main residence for under 30s and people with disabilities, with an income limit of 52,800 euros in individual declarations or 84,480 euros in joint declarations, with the value of the property not exceeding 270,151 euros. Likewise, a 50 percent reduction of the ITP is introduced for the purchase of a first home for people under 35 years of age and for the purchase of a primary residence for large families, single-parent families and families with disabled dependents. In the case of large families, the cost of the home cannot exceed 350,000 euros.
Finally, the new regulation provides that these amendments do not apply retroactively, but only from the date of their entry into force.
Conclusion: the importance of tax planning
The elimination or reduction of the Inheritance Tax might seem like a relief on the surface, but it’s critical to analyze the hidden risks it might entail. The complexity of inheritance distributions and the potential for higher taxation in IRPF and IRNR require careful consideration.
As always, qualified legal and fiscal advice is essential to fully comprehend the landscape and make informed decisions in this new era of inheritance and donation taxation. Don’t let apparent tax reductions end up costing you more in the long run.
Our Lullius Partners Private Wealth Group covers the full range of contentious and non-contentious private wealth legal issues. We are highly skilled in advising individuals and families in their planning and structuring of private wealth and business assets, wealth preservation, continuity of family businesses and smooth succession.
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