Valencian community announces further tax cuts for residents

New income tax reductions, higher wealth tax allowances and inheritance tax improvements for the Valencia, Alicante and Castellón provinces.

Residents for the Valenciana region of Spain have received more welcome tax news. Following last year’s reforms to regional taxation, the Valencian government has now approved further measures (Law 5/2026) to reduce income tax, double the wealth tax exemption and expand certain inheritance and gift tax reliefs.

If you live in the Valencian community or are planning to move there, these changes could provide valuable tax savings, particularly on wealth. They also highlight the importance of regularly reviewing your financial and estate planning arrangements to ensure they remain effective and up to date.

Lower Valencian income tax rates

Spanish income tax is made up of two elements: the national government ‘state’ rate and the regional rate set by the autonomous community where you live.

Under the new legislation, the Valencian regional income tax scale has been reduced from 1 January 2026, with a further reduction planned from 1 January 2027.

The cuts apply across virtually all income bands, lowering the overall tax burden for Valencian residents. For example:

• The lowest combined marginal rate falls from 18.5% to 18.3% in 2026 and 18.2% in 2027.
• Mid-range tax bands also see similar reductions.
• The top marginal rate falls slightly from 54% to 53.85% in 2026 and 53.75% in 2027 (assuming no changes to national tax rates).

While the percentage reductions appear modest, most taxpayers will benefit from slightly lower effective rates on earned income, pensions and rental income, generating savings over time.

The scale tax rates on savings and investment income are set by the state and remain unchanged for 2026.

Major boost to the Valencian wealth tax exemption

Perhaps the most significant announcement for wealthy individuals and families is the increase in the regional wealth tax exemption.

Currently, Valencian residents benefit from a regional wealth tax allowance of €1 million per individual, compared with the standard Spanish allowance of €700,000.

From 31 December 2026, this regional allowance will double to €2 million per person.

This reform applies from your 2026 wealth tax return, which is submitted in 2027. It means that a couple living in the Valencian Community could potentially shelter:

• €4 million through the new regional allowances, plus
• up to €600,000 of main home relief (€300,000 per spouse, if the property is owned in joint names)

For wealthier individuals, however, it is important to remember that Spain’s Solidarity Tax on Large Fortunes may still apply where individual net assets exceed €4,000,000.

New inheritance and gift tax opportunities

The reforms also introduce changes to the Valencian succession and gift tax regime.

Most notably, the existing 99% relief available for qualifying family businesses has been widened. The relief can now extend to collateral relatives up to the fourth degree, including first cousins, where qualifying conditions are met. This change creates greater flexibility for family succession planning and could help preserve established family businesses across generations.

In addition, transfers between certain family members will benefit from new tax credits:

• A 25% tax credit now applies to qualifying inheritances and gifts between siblings, uncles, aunts, nephews and nieces.
• This credit is due to increase to 50% from June 2027.

While these rules may not affect every family, they provide additional planning opportunities where assets are intended to pass between wider relatives.

Good news, but planning remains important

The Valencian Community has become increasingly attractive from a tax perspective in recent years, and the latest measures reinforce that trend.

However, lower tax rates alone do not guarantee a lower overall tax bill. Many UK nationals remain exposed to complex cross-border issues involving:

• Spanish income taxes
• Wealth tax and solidarity tax
• Spanish succession and gift tax
• UK inheritance tax
• UK pensions and investments
• Property ownership in multiple countries

As tax systems in both Spain and the UK continue to evolve, reviewing your arrangements regularly can help ensure your structures remain efficient and suitable for your circumstances.

Speak to a Blevins Franks adviser

The latest reforms create opportunities for many British expatriates living in the Valencian Community, but every family’s circumstances are different.

Blevins Franks advisers combine expertise in both Spanish and UK taxation to help clients structure their wealth, investments and estate planning efficiently across borders. If you would like to understand how these new Valencian tax changes could benefit you, speak to your local Blevins Franks adviser for personalised advice tailored to your situation.

Get in touch today.