Tax Reform in the Balearic Islands: Changes in Inheritance, Gift and Transfer Taxes

In a significant move towards tax reform, the Government of the Balearic Islands has introduced substantial changes to the Inheritance and Gift Tax and the Transfer Tax. These modifications, which come into effect as of July 18, 2023, have important implications for families and individuals in the Balearic Islands.

With the new Decree, the payment of inheritance and gift tax between parents and children, grandparents and grandchildren, and spouses is eliminated. A 100% rebate is applied on the corrected gross tax liability, although this does not exempt from the obligation to file the corresponding self-assessment of the tax.

In the case of inheritances between siblings or between aunts and uncles and nephews in which the deceased person has no descendants, the reduction will be 50%. If the deceased person has descendants, the reduction will be 25%.

The reform applies both to inheritances by cause of death and to inheritances under the so-called succession agreements or inheritances during life under the civil law of the Balearic Islands. However, in the case of inheritance by death, the tax is due on the day of the death of the deceased. Therefore, this new taxation is not applicable to inheritances of deceased before July 18, 2023.

The Decree-Law also includes the total elimination of the Transfer Tax (ITP) on the purchase of the first habitual residence for persons under 30 years of age and persons with a disability equal to or greater than 33%.

The tax rate will be 2% when the purchaser is under 36 years of age and the property is the first home acquired by the purchaser. In addition, the property acquired must be the habitual residence of the father, mother or parents who live with the son, daughter or children subject to parental authority and who are members of a large family or a single-parent family, provided that the purchase price of the property does not exceed 350,000 euros.

Finally, the wording of this amendment again leaves out Non-Residents. Therefore, we will again be waiting for the European Courts to declare again, as the Court of Justice of the EU did in its judgment of September 3, 2014, that the Spanish Inheritance and Gift Tax Law is contrary to Community Law for discriminating against non-residents in Spain.

These tax reforms in the Balearic Islands represent a significant change in the tax structure of the region. While these measures may be beneficial to many residents, it is important to remember that non-residents are still subject to discrimination in terms of inheritance and gifts. As always, it is essential to stay informed and seek professional advice to fully understand the implications of these changes.