Spain: Possible changes in Inheritance and Gift Tax

Spain

Possible changes in Inheritance and Gift Tax

Inheritance and Gift Tax has been transferred to the Autonomous Regions, which have limited legislative power though the majority of them have exploited this in order to establish a series of fiscal advantages favouring the closest relatives to the deceased or donor and reductions in tax rate which substantially reduce the tax paid by the spouse and descendants, in many cases bringing the figure down to close to zero.

A committee of experts recently delivered a report to the Government containing proposals for fiscal reform. Among the measures are those affecting Inheritance and Gift Tax, for which it is proposed, among other measures, to eliminate various reductions, apply a single reduction for kinship throughout the entire country and a reduced rate ranging from 4% for the spouse and descendants to 11% for foreigners. With these modifications the capacity of the autonomous regions to modify the tax would become much reduced.

The proposal to apply a minimum taxation is the consequence of widely varying fiscal pressure among the various autonomous regions.

The majority of people from countries of the European Union living in Spain do so in the Mediterranean area. In the case of inherited acquisition, the spouse and descendants resident in Spain are subject to the regulations of the autonomous region in which the deceased or donor lives, while if the heir or legatee does not reside in Spanish territory then Spanish legislation is applied to them, which is currently much less favourable for the taxpayer.

In general, all autonomous regions have approved major reductions in acquisitions by the spouse and children, meaning that the tax payable can be very different according to the  region in which the deceased or donor lives.

Listed below are some of the most notable differences among regions in the Mediterranean area.

Valencia Region.

  • · In mortis causa acquisitions there is a reduction of 75% in the tax paid by the spouse and children and heirs or legatees with disability equal to or greater than 33%, with the two reductions being incompatible. The reduction does not apply to beneficiaries who are not resident in the Valencia Region.
  • · Reduction of € 100,000 for parents and children who have a pre-existing wealth of less than € 2,000,000.

 

Catalonia

  • · Reduction in the tax rate for spouse and descendants.

From 1.02 of 2014 a reduction is being applied ranging from 99% for tax bases below € 100,000 to 57.3% for tax bases higher than € 3,000,000, and 20% for the rest. This reduction is reduced by a half if the taxpayer resorts to any specific reduction except that of habitual dwelling.

  • · In donations to the spouse and children formalised in a public document a progressive table is applied ranging from 5% for tax bases lower than € 200,000 up to 9% starting from € 600,000.

 

Balearic Islands

  • · Reduction in the tax rate of 99% for children under the age of 22.
  • · Deduction in the tax rate for the spouse or children which in practice brings the rate down to 1%.
  • · In donations a deduction is applied which brings the rate on the tax base down to 7%.

If this fiscal reform goes ahead, not only would a limitation be imposed on the disparities in taxation on inherited acquisition according to the region of residence of the deceased or donor, the state regulations would also thereby be brought into line with the demands of the EU so that heirs and legatees who are not resident in Spain would not receive a different and much harsher treatment than those who are resident here.

This reform would comply with the demands which Europe is imposing on Spain that there should be no discrimination in the taxation of heirs and legatees who are non-resident in Spain in comparison with residents living here.