Inheritance tax in the Balearic Islands

The Inheritance and Gift Tax is a tax ceded by the State to the autonomous community which is levied on increases in wealth (inheritance, legacy, donation and life insurance not subject to personal income tax) of individuals and whose management and collection is the responsibility of the Government of the Balearic Islands, if any of the following:

• the donor of the transfers “mortis causa” had his habitual residence in the territory of the Balearic Islands,
• when the donated real estate is located in the territory of the Balearic Islands
• when the donee has his habitual residence in this autonomous community in the other cases of donation of other goods and rights.

There is an obligation to pay Inheritance Tax in Spain when a person inherits any asset located within Spanish territory, irrespective of whether they are resident in Spain. Since the judgments rendered in Spain in 2018, residents and non-residents, whether they are EU citizens or not, are subject to the same regulations in terms of Inheritance Tax in Spain.

In other words, if you’re an expat or reside in your country of origin, this will make no difference in terms of the tax to be paid compared to what someone resident in Spain would pay.

The only difference between residents and non-residents is the administrative body in charge of collecting the tax. If you’re resident in Spain, the administrative authority to collect this tax will be the autonomous community where you reside but, if you’re a non-resident, this will be the non-resident department of the central administrative Tax Office in Madrid.

However, even if you’re non-resident and inherit a property in Mallorca, for instance, and you declare this tax to the Treasury in Madrid, you can still benefit from Balearic tax regulations, which is why non-resident heirs in Spain pay the same as residents.

Descendants or (adopted) children, as well as spouses and ascendants pay the least inheritance tax in Spain. These are children, husbands/wives, grandchildren and parents. These are relatives classified into groups I and II under the Tax.

It should be noted that the tax benefits existing for direct relatives are very different depending on the autonomous community where the assets are located or where they live and reside, as each autonomous community has its own regulations.

Due to the relationship with the deceased, the corresponding reduction of the following shall be applied:

1. Group I. Acquisitions by descendants under 21 years of age: 25,000 euros, plus 6,250 euros for each year under 21 years of age of the deceased. The reduction, however, may not exceed 50,000 euros.
2. Group II. Acquisitions by descendants aged 21 or over, spouses and ascendants: 25.000 euros.
3. Group III. Acquisitions by collaterals of second and third degree, ascendants and descendants by affinity (step children): 8,000 euros. 
4. Group IV. Acquisitions by collaterals of the fourth degree, more distant degrees and strangers: 1,000 euros.

These are the tables to be considered when calculation the inheritance tax in the Balearic Islands:

For Groups I and II (Acquisitions by descendants aged under or over 21, spouses and ascendants)

For Groups III and IV (Acquisitions by collaterals of second and third degree, ascendants and descendants by affinity:

Persons related collaterally in the 2nd and 3rd-degree family, such as siblings, nephews, nieces and brothers– and sisters-in-law, as well as other more distant relatives such as cousins, great-uncles, great-aunts and strangers.

Without a doubt, these are the heirs that pay the highest Inheritance Tax rates in Spain and they’re classified under groups III and IV of the Tax.

The deadline to pay inheritance is 6 months after the date of death and, if it remains unpaid, the tax administration may initiate proceedings to claim payment of the tax, with the ability to impose penalties. However, if there are justifiable reasons, it is possible to request an extension of 6 additional months and this application must be filed within 5 months of the death.

After four and a half years from the date of death, the government cannot require payment of this tax. In this case, the tax would be zero due to it being time-barred.

Finally, it should be noted that in the event that the heir has prior assets in Spain of more than €402,678.11, multiplication coefficients should be applied to the resulting inheritance rate, which differ according to the degree of relationship that the heir had with the deceased.

If you are thinking of selling your property, do not hesitate to contact Despacho Lamas.