Last May 2023 there were municipal elections in the Balearic Islands and consequently a change of political party.
One of the most important measures approved by the new Balearic legislature was Decree Law 4/2023 of 18 July 2023, which makes important modifications to the Inheritance Tax and the Transfer Tax, both taxes that have been ceded to our autonomous community.
The most important aspects of this law regarding transfer tax are that those under 36 years of age who buy their first habitual residence whose value does not exceed €270,151.20 will pay a transfer tax of 2%.
In addition, in order to encourage the purchase of a property by people under 30 years of age, they are exempt from paying the aforementioned tax (100% rebate), but to do so they must comply with a series of requirements i) they must have had their residence in the Balearic Islands for the previous 3 years, ii) it must be the first property they buy in Spanish territory and they must not have any other properties, iii) they must have the new property at least 3 years after the purchase iv) the purchase price cannot be more than 270.151,20 euros 151,20, v) the last income tax declaration cannot be higher than 52.800€ in case of individual taxation and 84.480€ in case of joint taxation.
Clearly we can see that these approved measures only apply to tax residents in Spain and in the last point to those who have had their habitual residence in the Balearic Islands, therefore, clearly non-tax residents (foreigners) cannot benefit from these bonuses of the transfer tax. In fact, it should be borne in mind that if one of the points iii) is not complied with, the taxpayer could receive a complementary tax for not having complied with the conditions for having benefited from the reduction.
With regard to Inheritance Tax, a suppression of inheritance tax and inheritance agreements between direct relatives – Groups I and II of kinship – (100% rebate) has been approved (100% rebate) but obviously this elimination has a series of requirements. At the moment this rebate does not apply to foreigners, only to Spanish tax residents, all this has caused a great commotion on the part of the tax advisors specialised in the matter, which is why from this law firm we are very attentive to whether the Balearic Government decides to change the text of the regulations. In addition to this, in order to be able to benefit from this 100% rebate in the deed of acceptance of inheritance or inheritance agreement, the reference value given by the Spanish State Tax Agency must be included. In many cases this reference value is lower than the market value. therefore, if the heir wants to sell the property later for a higher price, he/she will have to pay a very high amount of capital gains tax (between 19% and 28%) in his/her income tax return.
Before this 100% inheritance tax rebate was approved, the rebate was 99% (Group I and II of kinship) i.e. the heir paid 1% inheritance tax up to the first €700,000, the heir being able to put the value he/she wishes in the deed of acceptance of inheritance or inheritance agreement, not being obliged to put the reference value. For this reason, in many cases we recommend clients to make use of this option, with a 99% bonus, and pay 1%, allowing the taxpayer to freely value the property and in the event of selling it later, not having to pay tax to the spanish tax authorities the capital gain tax
Here again, the Balearic Government excludes non-residents from the 100% inheritance tax reduction.
egarding Group III (second and third degree collaterals) the regulation also introduces allowances that help to lighten the tax burden of taxpayers.
If you would like to obtain more information about inheritance matters in the Balearic Islands affecting foreigners or not, please do not hesitate to contact our law firm.
