Spain: The Balearic Islands eliminate the inheritance tax

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. In our opinion, this nuance is introduced for the purpose of avoiding revaluations that would result in lower personal income taxation in the event of a future transfer. 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 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.

 

Regarding the elimination of the Wealth Tax, promised during the election campaign, the new president of the Balearic Islands Government, Ms. Marga Prohens, announced at a press conference that its elimination would have no effect on taxpayers as long as the Temporary Solidarity Tax on Major Fortunes is maintained, which is why she has called to wait for a hypothetical reform by the next central government.

 

Finally, the new regulation provides that these amendments do not apply retroactively, but only from the date of their entry into force.