Balearic Islands Inheritance Tax. Reductions and Bonifications

Introduction

Balearic Islands have  an individualized inheritance treatment with reductions, rates and bonifications specifically created for its areas as Mallorca, Ibiza, Menorca, etc

The Inheritance and Gift Tax is a state tax. It is regulated by Law 29/1987, of December 18, on the Tax on Inheritance and Gift Taxes and the Regulation that develops it is Royal Decree 1629/1991, of November 8.  But, this national tax can be adapted and improved by regions. So, for Balearic  region, the Inheritance and Donation Tax is regulated and adapted by the regional law Decreto Legislativo 1/2014, de 6 de junio, por el que se aprueba el Texto Refundido de las disposiciones legales de la Comunidad Autónoma de las Illes Balears en materia de tributos cedidos por el Estado

In this section we will detail exclusively  reductions, tax rate and bonus  on the Inheriance and Donation Balearic  tax. For other aspects as Process of Inheritance, Executing a foreign Will etc, please, visit our Inheritance Process section, where all aspects and procedures may be reproduced in inheritance process independently of the specific executed region. 

Inheritance

Reductions in the tax base

Reduction due to kinship

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

a) 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 that the successor has in mind.

The reduction, however, cannot exceed 50,000 euros.

b) Group II: Acquisitions by descendants aged 21 or over, spouses and ascendants: 25,000 euros.

c) Group III. Acquisitions by second and third degree collaterals, ascendants and descendants by affinity: 8,000 euros. d) Group IV. Acquisitions by fourth-degree collaterals, more distant and strange degrees: 1,000 euros.

Disability reduction

Taxpayers due to a personal obligation to contribute who are legally considered to be a person with a physical, mental or sensory disability will also apply the following reductions, depending on the nature and degree of the disability:

a) Physical or sensory disability of a degree equal to or greater than 33% and less than 65%: 48,000 euros.b) Physical or sensory disability of a degree equal to or greater than 65%: 300,000 euros.c) Mental disability of a degree equal to or greater than 33%: 300,000 euros. 
Reduction for the acquisition of the main residence

Acquisitions due to death will have a 100% reduction in the value of the deceased’s main residence, with a limit of 270,151.20 for each taxable person, provided that the successors are the spouse, ascendants or descendants, or collateral relatives over 65 years of age who have lived with the deceased during the two years prior to the accrual of the tax.

For the application of this reduction, it is necessary that the acquisition is maintained for five years following the acquisition, unless the acquirer dies within this period. In the event that the requirement of permanence is not met, the part of the tax that has not been paid as a result of the reduction made and the corresponding interest for late payment will have to be paid, by means of a complementary self-assessment that must be submitted within a period of one month from the date on which the non-compliance occurs.

The following requirements must also be met:

a) The heirs must meet the requirement of kinship with the deceased required by section 1 above.

b) The requirement of cohabitation with the deceased in the two years prior to his or her death in order to generate the right to the reduction is only required of collateral relatives over 65 years of age.

c) The reduction will affect each successor in the proportion of the value of the main residence that is included in their taxable base.

d) If, as a result of testamentary dispositions, the adjudication of the main residence is made to only one of the successors, the reduction will only affect that beneficiary.

e) When, as a result of the transfer due to death, the ownership of the main residence is dismembered, the reduction will be made both with respect to the bare owner and with respect to the usufructuary, observing the following rules:

The reduction with respect to the usufructuary shall be applied with respect to the value of the usufruct over the main residence.2. The reduction for the bare owner shall be applied with respect to the value of the bare ownership of the main residence. For the calculation of the average effective tax rate applicable to the taxable base of the bare owner, the reduction that would correspond to the transfer of full ownership of said dwelling will be taken into account, as established in article 51.2 of the Inheritance and Gift Tax Regulations, approved by Royal Decree 1629/1991, of 8 November.3.ª When the consolidation of ownership is carried out due to the extinction of the usufruct, The reduction made on the value of the usufructuary share will be applied to the bare owner.

f) When the home is co-owned by the spouses, the reduction in the taxable base will be understood to refer to the half that forms part of the inheritance. In the event that the matrimonial property regime is different from that of separation of property, it will be necessary to follow the rules that govern this regime to determine the part of the home susceptible to reduction.

g) For the calculation of household goods, the reduction referred to in this article shall not be taken into consideration.

h) An habitual residence shall be understood to be that which meets the definition and requirements established at any time by the regulations governing personal income tax.

Reduction for life insurance

Regardless of the above reductions, a reduction of 100%, with a limit of 12,000 euros, will be applied to the amounts received by the beneficiaries of life insurance contracts, when they are related to the deceased contracting party as a spouse, ascendant or descendant.

In group insurance or insurance taken out by companies in favour of their employees, the degree of kinship between the deceased insured and the beneficiary will be taken into account.

The reduction will be unique for each taxpayer regardless of the number of life insurance contracts of which he or she is a beneficiary, and will not be applicable when he or she is entitled to the reduction established in the fourth transitional provision of the Inheritance and Gift Tax Law.

The same reduction shall in any case be applicable to life insurance accrued in acts of terrorism, as well as services provided in international humanitarian or peace missions of a public nature, and shall not be subject to the quantitative limit established in paragraph 1 of this article, and shall be extended to all possible beneficiaries. without the provisions of the fourth transitional provision of the Inheritance and Gift Tax Law being applicable.

Reductions for the acquisition of goods and rights assigned to economic activities

In cases in which the taxable base of an acquisition due to death corresponding to the spouse or descendants of the deceased person includes the value of a sole proprietorship or a professional business to which the exemption regulated in paragraph eight of Article 4 of the Law on Wealth Tax applies, or the value of usufruct rights over the aforementioned company or business, or of economic rights derived from the extinction of said usufruct, provided that on the occasion of death the full ownership is consolidated in the spouse or descendants, in order to obtain the taxable base it will be applied to the taxable base, regardless of the reductions that apply in accordance with the previous articles, a reduction of 95% of the aforementioned value.

In the cases of the previous paragraph, when there are no descendants, the reduction shall be applicable to acquisitions by ascendants and collaterals, up to the third degree, and with the same requirements as above. In any case, the surviving spouse will be entitled to the 95% reduction.

In accordance with Law 3/2015, of 23 March, which regulates cultural consumption and cultural, scientific and technological development patronage, and establishes tax measures, in the case of goods and rights assigned to a cultural, scientific or technological development company, the reduction is 99%.

In accordance with Law 6/2015, of 30 March, which regulates sports patronage and establishes tax measures, in the case of assets and rights assigned to a sports company, the reduction is 99%.

Reduction for the acquisition of shares in entities

In cases in which the taxable base of an acquisition due to death corresponding to the spouse or descendants of the deceased includes the value of shares in entities to which the exemption regulated in section eight of article 4 of the Wealth Tax Law applies, or the value of usufruct rights over the aforementioned shares, or those who receive the rights due to the termination of the usufruct in the form of shares in the affected company, business or entity, in order to obtain the taxable base will be applied to the taxable base, regardless of the reductions that may be made in accordance with the previous articles, a reduction of 95% of the aforementioned value.

In the cases of the previous paragraph, when there are no descendants, the reduction shall be applicable to acquisitions by ascendants and collaterals, up to the third degree, and with the same requirements as above. In any case, the surviving spouse will be entitled to the 95% reduction.

In accordance with Law 3/2015, of 23 March, which regulates cultural consumption and cultural, scientific and technological development patronage, and establishes tax measures, when it comes to social participations of cultural, scientific or technological development entities, the reduction is 99%.

In accordance with Law 6/2015, of 30 March, which regulates sports patronage and establishes tax measures, in the case of shareholdings in sports entities the reduction is 99%.

Procurement Maintenance Rule

The definitive enjoyment of the reductions established in Articles 25 and 26 shall be conditional on the maintenance of the acquisition for five years following the death of the deceased, unless the purchaser dies within this period.

Likewise, and during the same period of five years, the beneficiaries of these reductions may not carry out acts of disposition or corporate operations that, directly or indirectly, may give rise to a substantial reduction in the value of the acquisition.

If the above requirements are not met, the part of the tax that has not been paid as a result of the reduction made and the interest for late payment must be paid, by means of a complementary self-assessment that must be submitted within a period of one month from the date on which the non-compliance occurs.

In the acquisition of money due to death that is intended for the creation of a company, whether individual, professional business or corporate entity, through the original acquisition of shares or participations, a reduction of 50% will be applied, provided that the following requirements are met:

1. The company created must carry out an economic activity, without being able to have as its main activity the management of movable or immovable assets, in accordance with the provisions of article 4, paragraph eight, number two a, of the Wealth Tax Law, nor be engaged in the activity of leasing real estate.
2. At least, the company created must employ a person domiciled for tax purposes in the Balearic Islands with a full-time employment contract and registered in the general Social Security system, other than the taxpayer applying the reduction and the partners or participants of the company.
3. Within a maximum period of eighteen months from the accrual of the tax, the money acquired must be used to create the company and the job creation requirement must be met.
4. For four years from the creation of the company, the economic activity, jobs and the level of investment that is taken as the basis for the reduction must be maintained.
5. The basis of the reduction will be the amount of money that, acquired due to death, is effectively invested in the creation of the company, with a maximum of 200,000 euros.
6. The reduction may only be applied by the beneficiary who allocates the money acquired for the purposes provided for in this article.
7. The annual turnover of the company may not exceed the limit of 2,000,000 euros during the four years referred to in letter d above, calculated as provided for in Article 101 of the Consolidated Text of the Corporate Income Tax Law.
8. The beneficiary must have a pre-existing assets of less than 400,000 euros.i) In the case of the original acquisition of shares in a corporate entity, the shares acquired by the beneficiary shall represent more than 50% of the share capital of the entity, and shall remain in the assets of the beneficiary for a minimum period of four years.
9. In the case of the original acquisition of shares in a corporate entity, the beneficiary may not have any relationship with the rest of the partners, under the terms provided for in Article 18 of the Corporate Income Tax Act.

   In the event of non-compliance with the requirement laid down in point (c) of the preceding paragraph, or with the time limits referred to in points (d), (g) and (i), a supplementary return must be filed for the amount of the amounts that have not been paid together with the amount of default interest. within one month from the day on which the breach occurs.

Reduction for consecutive transfer of assets

1. If the same assets in a maximum period of twelve years are the subject of two or more transfers due to death in favour of descendants, in the second and subsequent transfers , the amount of the amount paid for the tax in the previous transfers will also be deducted from the taxable base.
2. This reduction shall also be applicable in the event that the assets transferred for the first time have been replaced by others of the same value that make up the inheritance of the next or subsequent transfers, provided that this circumstance is reliably accredited.

Reduction for the acquisition of certain vehicles

1. When the taxable base of an acquisition due to death corresponding to the spouse, ascendants or descendants of the deceased includes the value of a vehicle with a zero-emission environmental classification, a reduction of 50% of the value of the vehicle will be applied to the taxable base to obtain the taxable base

.2. Where the value of a vehicle with an ECO environmental classification is included in the taxable base of an acquisition due to death corresponding to the spouse, ascendants or descendants of the deceased, a reduction of 25% of the value of the vehicle shall be applied to the taxable base in order to obtain the taxable base.

Other reductions:

• Reduction in the acquisition of money due to death for the creation of new companies and employment
• Reduction in acquisitions of cultural goods for the creation of cultural, scientific or technological development enterprises
• Reduction in the acquisition of money due to death for the creation of new companies and employment
• Reductions in procurement of assets for the creation of sports companies
• Reduction for the acquisition of assets that are part of the historical or cultural heritage of the Balearic Islands
• Reduction for the acquisition of assets that are part of the Spanish historical heritage or the historical or cultural heritage of other Autonomous Communities
• Reduction for the acquisition of certain assets and shares in areas of protected rural land or in areas of agricultural interest

Tax Rate

a) The taxable base will be taxed at the rates indicated in the following scale, obtaining the full amount:

Important note: with effect from 1 January 2016, a separate scale is created for the successions of groups I and II and the existing rates for the rest of the groups are maintained:

b) The corrected full tax liability shall be obtained by applying to the full tax the corresponding multiplier coefficient of those indicated below, depending on the amount of the pre-existing assets of the taxable person and the group in which, due to its relationship with the transferor, it is included:

Bonifications on the tax rate

Group I & II 100% Bonus

100% discount on the full corrected tax liability on acquisitions due to death and, by assimilation, in the succession agreements referred to in Law 8/2022, of 11 November, on voluntary contractual succession of the Balearic Islands, to taxpayers with a personal obligation to contribute who are included in groups I (descendants under 21 years of age) and II (descendants of 21 years of age or more).

To apply this discount, in the event that real estate is acquired, the value of the real estate acquired will be recorded in the corresponding public deed, which may not exceed in each case the reference value increased by 20% or, when this reference value does not exist or cannot be certified by the General Directorate of the Cadastre,  the market value.

This rebate does not exempt from the obligation to file the self-assessment of the tax, although the taxpayer must only present the authorised copy of the testamentary dispositions if there are any and, failing that, witness the declaration of heirs (in the case of intestate succession, if the judicial declaration of heirs has not been made,  a list of the presumed heirs must be presented with an expression of kinship with the deceased).

Group III.- 50% and 25% bonus

 Taxpayers with a personal obligation to contribute to the fact that they are second or third degree collateral by consanguinity of the deceased, included in group III, and do not concur with descendants or adoptees of the deceased, or concur with descendants or adoptees of the deceased who are disinherited.

A 25% discount on the corrected full amount  must be applied to the rest of the taxpayers in group III (new article 36 bis of the Consolidated Text of the legal provisions of the Autonomous Community of the Balearic Islands on taxes transferred by the State, approved by Legislative Decree 1/2014, of 6 June).

To apply this discount, in the event that real estate is acquired, the value of the real estate acquired will be recorded in the corresponding public deed, which may not exceed in each case the reference value increased by 20% or, when this reference value does not exist or cannot be certified by the General Directorate of the Cadastre,  the market value.

This rebate does not exempt from the obligation to file the self-assessment of the tax.

Donations

Reductions in the tax base

Reduction in monetary donations from parents to children or other descendants for the acquisition of the first habitual residence

In the case of monetary donations from parents to children or other descendants for the acquisition of the first habitual residence, a reduction of 100% of the amount donated will be applied, provided that the following requirements are met:

a) The donation must be formalized in a public deed in which the will that the money donated be used to acquire the home of the child or descendant must be recorded.b) The acquired home must reach the character of in accordance with the definition and requirements established at all times by the regulations governing personal income tax.c) The property must be acquired within a maximum period of six months from the formalisation of the donation.d) The real or declared value – if the latter is higher – of the property acquired may not exceed the amount of 270,151.20 euros.

Failure to comply with the requirements referred to in letters b) and c) entails the supervening loss of the tax benefit and, in these cases, the taxpayer must file a supplementary self-assessment within one month from the date on which the non-compliance occurs and pay, together with the quota, the corresponding default interest.

It is provided that it is not required that the habitual residence be the first habitual residence of the donee in the following cases:

a) When the donee is a person with a degree of physical or sensory disability equal to or greater than 65% or with a degree of mental disability equal to or greater than 33%.b) When the donee is a child or descendant who,  in turn, is the owner of a large family, under the terms established in Article 6 of Law 8/2018, of 13 July, on support for families, or of a single-parent family as provided for in Article 7.7 of the aforementioned Law 8/2018.

In any case, this reduction is incompatible with the reduction of the tax in the case of a donation to children or other descendants of a property that must constitute the main residence and its limits must be applied both in the case of a single donation and in the case of successive donations, whether they come from the same ascendant or from different ascendants.

Other reductions:

– Reductions for the acquisition of assets and rights related to economic activities
– Reductions for the acquisition of shares in entities
– Reductions for the acquisition of assets and rights related to economic activities or for the acquisition of shares in entities, when jobs
are maintained- Reduction in monetary donations from parents to children or to other descendants or between collaterals up to the third degree for the creation of new companies and employment
– Reduction in monetary donations from parents to children or to other descendants or between collaterals up to the third degree for the creation of cultural, scientific or technological
development companies- Reduction in monetary donations from parents to children or other descendants or between collaterals up to the third degree for the creation of sports companies
– Reduction for the acquisition of assets that are part of the historical or cultural heritage of the Balearic Islands
– Reduction for the acquisition of assets that are part of the Spanish historical heritage or the historical or cultural heritage of other autonomous
 communities- Reduction for the acquisition of the main residence by certain groups (modified with effect from 26 November 2023).
– Reduction in donations to protected assets owned by people with disabilities

Tax Rate

a) The taxable base will be taxed at the rates indicated in the following scale, obtaining the full amount:

b) The corrected full quota shall be obtained by applying to the full quota the corresponding multiplier coefficient according to the amount of the pre-existing assets and the following kinship group:

Regional bonus for donations resulting from transfers of real estate in exchange for lifetime maintenance

In the case of donations which, in accordance with article 14.6 of the consolidated text of the Law on the tax on property transfers and documented legal acts, approved by Royal Legislative Decree 1/1993, of 24 September, result from the excess of the value of the real estate being transferred over the life-long alimony that the transferee of the property establishes in favour of the transferor, the following discounts will be applied to the full amount:

a) 70% when the relationship of the person transferring the property to the transferor is one of those that make up group III.

b) 73% when the relationship of the person transferring the property to the transferor is one of those that make up group IV.

In any case, the application of this bonus will require the following requirements to be met:

a) The relationship of the person transferring the property to the transferor must be one of those included in groups III or IV.

b) The person transferring the property must be over 65 years of age or have a degree of physical, mental or sensory disability equal to or greater than 65%.

c) This must be the first transfer of real estate for the transferor in exchange for a life-long maintenance pension.

d) The property being transferred must have a value equal to or less than 300,000 euros.

e) The transferred property must remain in the transferee’s estate for a minimum period of ten years from the acquisition, unless the transferee dies during this period.

Failure to comply with the permanence requirement regulated in letter e) of the previous section will result in the loss of the tax benefit, and the taxpayer must include in the tax return corresponding to the year in which the failure occurs the part of the tax that has not been paid as a result of the deduction made, together with the corresponding late payment interest.

c) The net amount will be the result of applying the applicable state bonuses and deductions to the corrected full amount, and in particular, the following:

State deduction for international double taxation: taxpayers will have the right to deduct the lowest of the following amounts:

1. The effective amount paid abroad for a similar tax affecting the increase in assets subject to tax in Spain.
2. The result of applying the average effective rate of this tax to the increase in assets corresponding to assets located or rights that can be exercised outside Spain, when they have been subject to tax abroad for a similar tax.