The 2016 budget for the Canary Islands confirms the announcement made last summer – a 99.9% reduction for succession and gift tax now applies for children and spouses (group I & II beneficiaries). This is called ‘Bonificación de la cuota por parentesco’. This is good news, as the region used to have one of the highest succession tax burdens in Spain.

Spanish succession and gift tax is charged if the beneficiary is resident in Spain, or if the assets being gifted or inherited are Spanish located assets.

It is the recipient who pays the tax. There is no blanket exemption between spouses, where they are both resident in Spain, when ones dies the other can be fully liable on the worldwide assets inherited.

The progressive rates of succession and gift tax range from 7.65% for assets under €7,993 up to 34% for assets over €797,555. Multipliers, depending on the relationship between you and the beneficiary and their personal net worth, can take the tax rate much higher in some circumstances. Under state rules, spouses and children over 21 receive a tax free allowance of €15,957.

The Spanish autonomous communities can adjust the tax rates, deductions and allowances. Some regions have significantly eased the tax burden for spouses and children but the tax liability for Canary Island residents was substantial in recent years. The allowance for your spouse here is €40,400. Everything else is liable for tax at the rates mentioned above. There is a 99% deduction on the main home, with a maximum of €200,000, provided the property is kept for five years.

In his acceptance speech last July, Mr. Fernando Clavijo, the new Canary Islands Prime Minister, announced that beneficiaries in groups I and II (children and spouses) will receive a 99.9% reduction in succession and gift tax. This re-establishes the succession tax regime that existed in the Canary Islands until July 2012.

This new reduction applies from 1st January 2016.

Note that to apply the 99.9% reduction for gift tax purposes, the donation has to be done via a public deed (‘documento público’).

Succession tax can be so punitive that the number of heirs renouncing their inheritances because they cannot afford the tax bill has increased notably in Spain during recent years. Additionally, this tax has prompted many residents to move from the Canary Islands to other regions with more generous allowances.

This announcement is therefore very welcome for everyone who lives here. However, estate planning remains as important as ever, particularly if you have heirs other than spouses and children, and if you wish to ensure the right people inherit your assets at the right time.

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Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.