Suppression of inheritance (and gift) tax in the Valencian Community

We analyze the long-awaited Law 6/2023, of 22 November, of the Valencian Regional Government, to reform the Valencian regional regulations on Inheritance and Gift Tax, a law that fulfils one of the electoral promises made by the Popular Party in the regional elections of May 2023.

Content overview

What taxes does the Law affect?

The Law substantially modifies in favour of taxpayers, the Valencian autonomous regulation of Inheritance and Gift Tax (ISD), a state tax that is currently assigned to the Autonomous Communities. It is a double tax levied on lucrative transfers, both mortis causa (Inheritance Tax) and inter vivos (Gift Tax) and whose regulation and levy corresponds to the Valencian Community in those cases in which the regional regulations must be applied (e.g. in the case of a donation of a property located in the Valencian Community).

When does the Law enter into force?

The Law has been in force since 24 November 2023, the day after its official publication. However, it has retroactive effect from 28 May 2023, so it is advisable to review previous tax assessments. In the event, that tax has been paid on an inheritance or donation occurring after that date, applying the less favourable regulations in force at that time, a refund of the excess tax payments may be requested.

Who benefits?

All heirs and donees, both resident and non-resident in Spain, providing that the Valencian regional regulations are applicable and they are beneficiaries of one of the new or improved tax reliefs and reductions.

What are the main changes in inheritance taxation?

The percentage of tax relief on mortis causa acquisitions made by descendants (children, grandchildren and others), adoptees, spouses, ascendants and adoptive parents of the deceased is increased from 50%-75% to 99%.

What are the main changes in the taxation of donations?

A new tax relief of 99% is introduced for inter vivos acquisitions made in favor of the donor's spouse, parents, adoptive parents, children or adopted children, grandchildren and grandparents, as long as the donation is made or formalized in a public document.

What tax benefits have been approved for people with disabilities?

The above tax relief will be applied, improving the existing ones, also in the case of mortis causa or inter vivos acquisitions by persons not related to the deceased or donor, who have a physical or sensory disability with a degree of disability equal to or greater than 65%, or a mental disability, with a degree of disability equal to or greater than 33%.

How do the tax reliefs work?

The reliefs reduce the inheritance and gift tax liability and mean that, for every €100 of tax liability, only €1 is paid, in the aforementioned cases. In order to calculate the amount to be paid, the tax liability must first be calculated and then reduced by the amount of the reduction.

What other changes have been approved?

The Law improves the regulation of the already existing reduction of € 100,000 (and up to € 156,000 for children and grandchildren under 21 years of age) in inter vivos transfers:

  1. The donor's spouse may be the beneficiary of the reduction.
  2. The requirement for the donee to have a pre-existing estate prior to the donation equal to or less than €600,000 is eliminated.
  3. The reduction may be applied to direct donations made between grandparents and grandchildren and vice versa, without making it conditional on the prior death of the respective child-parent; and
  4. The cases of non-application of the reduction for transfers made in the immediately preceding ten years are eliminated.

There is an equivalent reduction for transfers mortis causa, which has not been modified.

How do kinship reductions work?

The reductions for kinship reduce the value of the inheritance to be taxed, so that if the value is €250,000 and a child of the deceased applies a reduction of €100,000, only the difference of €150,000 will be taxed.

Reductions and allowances are applied successively, so that if the resulting tax liability for a reduced inheritance value of €150,000 is €21,000 and, as a child of the deceased, you are entitled to a 99% allowance, only €210 will be payable.

Valuation

The Law is in line with the Inheritance and Gift Tax reduction previously implemented in 2022 in the region of Andalusia and which has been in force for almost two decades in the Community of Madrid. It involves the reintroduction of tax benefits that were historically partially in force in the Valencian Community and seeks greater coherence and harmonization with the surrounding regional regulations.

Particularly, the regulatory modifications now introduced grant taxpayers the power to carry out transfers of assets during their lifetime or to acquire them in the context of an inheritance without incurring excessive tax burdens. This change represents a substantial relaxation in wealth management, encouraging the mobility of assets within the family and facilitating succession planning.

At Lozano Schindhelm we are at your disposal to advise you on the processing of donations or inheritances applying the currently approved tax benefits, as well as on whether it is appropriate to request the refund of taxes paid in excess for accruals after 28 May 2023, in accordance with the deadlines and procedures established by the regulations.

All this in your language and with high quality standards, backed by more than 15 years of experience in providing tax advice to residents and non-residents.



Autor: Fernando Lozano
Autor: Claudia Cascant