The Inheritance and Gift Tax (ISD) is one of the taxes that most concerns families when it comes to organizing their wealth and making decisions in this regard, especially in terms of housing and real estate.
As it is a tax of autonomous management (with certain limits, marked by the national law), the differences in the final bill between some autonomous regions and others for the same case are abysmal.
Therefore, it is important to know the status of the regulations of each autonomous community at any given time, in order to be able to make property decisions (or postpone them as far as possible). In this article we summarize for you the conclusions reached by the Registry of Economists-Tax Advisors (Reaf) in its latest comparative study on Inheritance Tax 2019 in Spain, including the case of Catalonia. Consult us about your case. First of all, it is important to know that these differences are based on the broad capacity of the autonomous regions to apply reductions, allowances and deductions to the tax base of this tax.
This has led to a certain degree of tax competition, with very high rates in some geographical areas and almost zero rates in others.
The study we analyze is based on a specific and relatively common assumption: that of a single person of 30 years of age, who inherits assets from a parent for a value of 800,000 euros, of which 200,000 correspond to the house.
Based on this example, we can see recent changes and great differences in the map of Inheritance and Gift Tax between autonomous regions. Communities such as Aragón or Cantabria have reduced the Inheritance Tax in 2019 for cases between parents and children. In the case of Aragon, the average reduction has meant 100,000 euros of savings for the heirs, who have gone from paying 155,394 euros to 55,466 euros of liquid quota, following the example of Reaf.
In the case of Cantabria, it has gone from paying 14,796 euros to total exemption, as reported by elEconomista.
Other regions, however, have very high liquid quotas, as is the case of Asturias (103,135 euros), Castilla y León (81,019 euros), Comunidad Valenciana (63,194 euros), Aragón (55,466 euros), Castilla-La Mancha (31,759 euros) or Galicia (15,040 euros). The case of Catalonia, as we can see, is halfway between both realities.
Chart by elEconomista.
On the other hand, in the case of inheritances received by parents, siblings, uncles, daughters-in-law and sons-in-law (Group III relatives), there are also differences.
In the Canary Islands (although changes have already been announced for 2010) there is a 99.9% allowance, and in Madrid, both for successors and donees, if they are siblings, they receive a 15% allowance (for uncles or nephews the percentage drops to 10%). The Autonomous Communities that almost completely exempt the closest relatives from taxation are the Basque Country, Andalusia (0.00 euros), Cantabria (0.00 euros), the Canary Islands (134.23 euros), the Community of Madrid (1,586 euros) and Extremadura (1,588 euros). It is worth mentioning the case of Andalusia, which, after years of being the autonomous territory with the highest taxation, last April 9 approved a 99% tax rebate -identical to the one in force, for example, in Madrid-.
However, the reality is that it is necessary to study each specific case in order to calculate the amount that will have to be paid in inheritance matters: it is necessary to know which regulations apply and which exemptions, allowances, reductions or deductions can be applied to each part and for which specific assets. Put yourself in the hands of a lawyer for inheritance in Barcelona.
Inheritance and CJEU rulings on discrimination against non-residents and non-EU nationals
Finally, it is important to remember that the discriminations that have existed in Spain regarding this tax in the case of citizens not residing in Spain but within the EU, as well as in the case of non-EU citizens, have disappeared. First, it was the case of EU citizens inheriting in Spain: until the end of 2014, in inheritances with non-residents, the state regulations had to be compulsorily applied, and the tax benefits existing in the different autonomous communities could not be applied.
In response, the Court of Justice of the EU (CJEU) condemned Spain in a judgment of September 3, 2014, considering that this discrimination of non-residents violated the free movement of capital.
Spain modified the regulations as of January 1, 2015, but only allowed the application of regional tax benefits in inheritances with residents in the EU or in the European Economic Area, so that non-EU nationals continued to be discriminated against and obliged to pay a higher Inheritance and Gift Tax by applying exclusively the state regulations. In 2018 it was the turn of non-EU citizens inheriting in Spain.
A new ruling of the CJEU (with subsequent regulatory change in Spain) ended this discrimination, applying since then the regulations of the autonomous community that corresponds in each case.
How does the Inheritance and Gift Tax affect the real estate market?
The reality is that there is The Inheritance and Gift Tax has a significant influence on the real estate market in Spain. Excessively high rates in some areas and extremely low rates in others result in investment decisions being driven by these trends, such that the tax has a direct impact on the economic behavior of individuals and the relocation of their properties to other jurisdictions where they are not taxed or, if applicable, are taxed at a substantially lower rate. In the same way, The tax authorities claim that many taxpayers relocate their residence to pay less taxesand propose “specific action programs to avoid fictitious relocations of individuals and legal entities”.
Another very recurrent effect is the rejection of inheritances by those who cannot afford to pay the tax.
Finally, this tax also influences the liquidity of estates: the ISD payment mechanisms are often not very flexible, despite the lack of liquidity in which many estates find themselves. For this reason, more and more autonomous communities are exempting close relatives from taxation by applying allowances.
