Balearic Islands eliminates inheritance tax between close relatives

On July 18, the Governing Council of the Balearic Islands passed a decree law—Decree-Law 4/2023 ("DL 4/2023")—that significantly changes the inheritance and gift tax (IGT) rules under Legislative Decree 1/2014, of June 6, which consolidates the legal provisions of the Balearic Islands Autonomous Community on taxes transferred by the central government.

Up to the entry into force of this amendment, only inheritance received by resident taxpayers included in group I (i.e., descendants aged under 21 years) benefited from a 99% rebate.

DL 4/2023, which comes into force from July 18, 2023, provides for a 100% rebate of the IGT payable on acquisitions as a result of death (and, by equivalence, under agreements relating to succession) when the beneficiaries are descendants of any age, spouses and ascendants (relatives included in groups I and II).

The original text of DL 4/2003 limited the applicability of this rebate to taxpayers resident in Spain, excluding non-residents from its benefit. This could constitute a breach of European Union law, as it could hinder the free movement of capital established in Article 63 of the Treaty on the Functioning of the European Union by denying non-residents the possibility of applying the full 100% rebate. Therefore, during the parliamentary process of Act 11/2023, of November 23, amendments were introduced to clarify that the rebate is available for both resident and non-resident taxpayers.

Finally, no amendment has been made regarding the tax treatment of gifts and, therefore, the regional deduction that caps the taxation at 7% of the net tax base is still applicable.