Is your Balearics tax planning up to date for 2024?

There have been two significant tax reforms in the Balearic Islands over the last year, so here we look at how you and your family may benefit. 

While the Spanish tax regime is established by the state, the autonomous regions can adjust tax rates and allowances for local taxpayers.

Balearics tax on inheritance

Like many countries, Spain applies an inheritance tax when assets are passed from one person to another, either on death or as a lifetime gift.

Spanish succession and gift tax (SSGT) is charged on each recipient and applies where either the beneficiary is a resident of Spain or the asset being gifted or inherited is located in Spain. Beneficiaries are divided into groups based on their kinship to you, with the rates and allowances for immediate family more generous than those for other relatives or non-relatives.

In the Balearics, with effect from 18 July 2023, succession tax liability is reduced by 100% for group I and II beneficiaries. This means that your spouse, children, grandchildren and parents do not pay any tax when receiving inheritances or gifts from you. Likewise, you won’t pay tax if you receive an inheritance.

If you do not have children and pass assets to a brother, sister, nephew, niece, uncle or aunt, their succession tax liability is reduced by 50%.  In the absence of other descendants, stepchildren and in-laws may benefit from a 25% reduction.

Balearics tax on wealth

Spain imposes two annual capital taxes on wealth, the main ‘wealth tax’ and a newer ‘solidarity tax on large fortunes’.  They are calculated on the value of your worldwide assets (real estate, investments, shareholdings, jewellery, art, cars etc) as at 31 December if you are resident in Spain.  Non-residents are liable on Spanish assets.

While under state rules, each individual receives a personal tax-free allowance of €700,000, the Balearics have increased the main wealth tax allowance to a much higher €3,000,000.  This applies from the 2024 wealth tax returns, which are submitted in 2025.

If you are a resident, you also receive the additional €300,000 allowance against your main home.  If a property is jointly owned, you both receive this allowance.

The Balearics government cannot adjust solidarity tax in the same way, as this is only governed at the state level. However, it only applies to wealth above €3 million, and then you get the €700,000 and €300,000 allowances.  If you are liable for the Balearics wealth tax, your solidarity tax bill is reduced accordingly (you don’t pay tax twice).

Both these reforms are very welcome for Balearic residents and make the islands an even more attractive place to live. It is still worth speaking to a tax and wealth management adviser though, to ensure your assets are structured to fully benefit from the local tax regime.

Contact Blevins Franks today to arrange a personal consultation.