New law Valencia region 22nd Nov 2023. 99 % reduction on Inheritance and Donation tax

On November 22, 2023 Valencian government approved a new law that will have a huge impact on the regulation of donation and inheritance tax in the Valencian Community (Castellón, Alicante, and Valencia).

Click here to see the law

It is basically made up of the following aspects:

– Regarding Inheritance and Donation taxes, it extends the tax reduction to 99% of the final payment once the tax payable has been calculated.
– As far as the Donation Tax is concerned, it extends the bonus to spouses (in previous legislation on gift tax, donations between spouses were not subsidized).

Let’s see how it works:

Antecedents

Background of bonuses in tax regulation

• Originally Beneficial for the Family : For many years, the Inheritance Tax in Valencia was quite light for citizens. This was because there were large deductions (99%) for immediate family members such as children, parents, and spouses of the deceased.
• Changes Due to the Economic Crisis : During the economic crisis, the government reduced this deduction to 75% to help increase state revenue.
• Reduction of Deductions since 2017 : Starting in 2017, deductions were reduced further to increase government revenue. Overall, the deduction was reduced to 50%. However, for children under 21 years of age or people with certain degrees of disability, the deduction is 75%.
• Criticisms of the Tax : The Valencian government has taken up the criticism that has historically been leveled against this tax, arguing that it negatively affects people’s savings and investments. Additionally, because this tax is levied when someone dies, it can be an emotional and financial burden for families, especially if there is no real financial benefit from the inheritance. Sometimes families even have to reject the inheritance because they cannot pay the tax.
• Minor Impact on State Revenue : Furthermore, according to the Valencian government, despite these criticisms, the Inheritance Tax represents only a small percentage (around 1%) of the Valencia government’s total revenue.

• The same happens with the Gift Tax: Low Impact on Income and No Tax Benefits : The gift tax also has a minimal impact on public income (only 0.1%) and, unlike the Inheritance Tax, it does not offers no deduction for taxpayers in Valencia.

Conclusion: Change in the Law

Due to all these factors, it is suggested to modify Law 13/1997 to increase tax incentives, especially for transactions within the family.

In summary, the text describes how the Inheritance Tax and the Gift Tax in Valencia have evolved and how they affect families, suggesting changes in the law to make them more favorable for citizens, especially in the context of family transactions.

The new inheritance and donation/gift  tax in the Valencian Community?

 

Inheritance Tax 

A bonus of 99% of the tax rate is approved for mortis causa acquisitions and receipts of amounts obtained by the beneficiaries of life insurance that are added to the estate made by relatives of the deceased belonging to groups I and II of article 20.2. a of Law 29/1987, of December 18, on Inheritance and Donation Tax:

• Group I: acquisitions by descendants and adoptees under twenty-one years of age
• Group II: acquisitions by descendants and adoptees aged twenty-one or older, spouses, ascendants and adopters

Donation/gift tax 

Secondly, the 99% tax reduction is also introduced for acquisitions by donation or other lucrative inter vivos acts held in favor of the spouse, parents, adopters, children or adoptees of the donor, simplifying the current regulation of the associated reductions. to kinship, and most importantly, incorporating the donor’s spouses as beneficiaries.

The donor’s Spouse is included in the bonus

The inclusion of the donor’s spouse as a tax bonus is very important since previous legislation did not contemplate such a bonus at all. The scenario prior to the approval of this law allowed inheritance tax reductions and bonuses to be applied to descendants and the spouse, but the same did not occur in donations, where the spouse was excluded from them.

Therefore, as of the entry into force of this law, donations between spouses can benefit from the reduction applied.

How to calculate Valencian Inheritance/Donation from  2023? 

It continues to be applied exactly the same as before, that is:

Calculation of the tax base

Each and every one of the assets in the name of the deceased are included: Property, furniture, bank accounts, etc.

Reduction of the Tax Base

The reductions included in the previous regulations are applied to the total amount of the tax base, that is:

• Acquisitions for children or adopted children under 21 years of age: 100,000 euros, plus 8,000 euros for each year under 21, without the reduction exceeding 156,000 euros.
• Acquisitions by children or adopted children aged 21 or over, by the spouse, parents or adopters: 100,000 euros.
• Acquisitions by grandchildren: 100,000 euros, if the grandchild is 21 or older, and 100,000 euros, plus 8,000 euros for each year less than 21 that the grandchild is, without, in the latter case, the reduction exceeding 156,000 euros .
• Acquisitions by grandparents: 100,000 euros.

Tax rate

The tax rate of the tax is applied to the amount obtained from the taxable base, which is as follows:

Liquidable base (up to €)	Liquidable fee (€)	Remaining liquidable base (up to €)	Applicable rate (%)
0	0	7,993.46	7’65
7,993.46	611.50	7,668.91	8’50
15,662.38	1,263.36	7,831.19	9’35
23,493.56	1,995.58	7,831.19	10’20
31,324.75	2,794.36	7,831.19	11’05
39,155.94	3,659.70	7,831.19	11.90
46,987.13	4,591.61	7,831.19	12’75
54,818.31	5,590.09	7,831.19	13’60
62,649.50	6,655.13	7,831.19	14’45
70,480.69	7,786.74	7,831.19	15’30
78,311.88	8,984.91	39,095.84	16’15
117,407.71	15,298.89	39,095.84	18’70
156,503.55	22,609.81	78,191.67	21’25
234,695.23	39,225.54	156,263.15	25’50
390,958.37	79,072.64	390,958.37	29’75
781,916.75	195,382.76	Onwards	34’00

 

Multiplier coefficients

The following multiplier coefficients are applied to the amount obtained by applying this rate:

Preexisting Heritage	Groups of article 20 (Law 29/1987, of December 18, on Inheritance and Donation Tax)
IN EUROS	I and II	III	IV
From 0 to 390,657.88	1,0000	1.5882	2,0000
From 390,657.88 to 1,965,309.58	1.0500	1.6676	2,1000
From 1,965,309.58 to 3,936,629.28	1.1000	1.7471	2,2000
More than 3,936,629.28	1,2000	1.9059	2,4000

Rate bonus

And, finally, in application of this new law, a 99% reduction is applied to the result obtained from applying the reductions, rates and multiplier coefficients to the tax base.

Does this reduction mean that the donation/Inheritance tax declarartion  does not have to be filed from now?

No. The reduction or bonus in the Inheritance and Donation Tax does not exempt citizens from the obligation to file the tax return. Even with a bonus or reduction in the tax rate, legal and administrative procedures are still necessary

When does the law come into force? 

It has just come into force for all cases of inheritance and donations made from now on.

What benefits can be obtained with the application of this law?

The tax bonus proposed by this law in the Valencian Community could have several consequences for citizens, mainly positive. Here I detail some of these possible implications:

1. Reduced Financial Burden on Families : The bonus would reduce the financial burden on families during difficult times, such as the loss of a loved one. This could make facing Inheritance Tax less daunting.
2. Facilitate Wealth Transfer : With higher deductions, it would be easier for heirs to receive and maintain inherited assets, such as homes or family businesses, without the pressure of selling them to pay the tax.
3. Encouragement of Savings and Investment : Reducing the tax burden on inheritances and gifts can encourage people to save and invest more, knowing that their loved ones will receive a greater share of their assets.
4. Promotion of Living Donations : Bonuses on the Gift Tax can encourage citizens to make donations during their lifetime, thus facilitating estate planning and the distribution of assets.
5. Possible Impact on Public Revenue : Although the impact of the Inheritance and Gift Tax on total government revenue is relatively small, any reduction in taxes could have an impact on public revenue. This may require adjustments in other areas of the budget.
6. Greater Tax Equity : The bonus could be perceived as a step toward greater tax equity, easing the burden on low- and middle-income families.
7. Impact on the Real Estate Market : Facilitating the transfer of real estate properties could have an effect on the real estate market, possibly stabilizing it or increasing activity in certain segments.
8. Social Implications : By reducing the financial burden during the transfer of wealth, this law could have a positive social impact, especially in the preservation of family wealth across generations.

In summary, the proposed bonus on inheritance and gift taxes in the Valencian Community could alleviate the financial burden on families, facilitate the transfer of wealth, and encourage savings and investment, although it could also have a minor impact on income government public.

What you do now with these advantages? 

1.- Investing in properties at the Valencian region will be cheaper

One of the most widely suggested questions is “How much inheritance tax to pay if I have a hosue in Valencia region?.

Now, the answer is easy:    For family members: less than 1 %

2.- You do not need to wait for your inheritance to pass the property to your children/spouses

You can do it now, avoiding eventual changes of law on inheritance/donation tax in the future!

For example, if you were thinking to pass on inheritance your Spanish property to your inheritors, you can do it now, so, do not need to be worry about future increases of the tax.

**Some practical formulas:

In case you do not wish to pass the full control to your spouse/children the property now, you may transfer  keeping a part of the property for you (usufruct) and passing your family the nude/bare ownership only. In this way, you will be able to pass almost all the property rights on the property to the family, but, as usufructuary, you will be entitled to use and control the property, even rent it for live. You will be the only one to decide about the property while you are alive.

2.- Including family members in the deeds will be cheaper

So, now you can donate/give the whole property, or to include in the deeds to your spouse, your children, with a much reduced tax of 99 % in Gift/Donation taxes

3.- You may claim back tax already paid

In case you have passed through a donation/inheritance process after May 2023, you may claim back what you have paid on excess of the tax!

This is because the law has retroactive effects until May 2023

The law applies retroactively until the end of May 2023. This means that all cases of inheritance and donations that have occurred since the end of May 2023 can benefit from this new regulation.

You can request a refund of the excess tax payment and you can give and include in the deeds  your spouse, your children, etc.

Therefore, if you have completed an inheritance or donation process since May 2023, you can benefit from these new regulations and request a refund of the tax paid.

TLA Free of charge consultancy service 

TLA has created a special FREE and NO COST study service, to assist all those who wish to know about the new law and how this affects to their Spanish patrimony, and what to do with it.

In case you are in one of these situations:

• Planning to donate, to give, or to include a family member in your property deeds. You may complete your inheritance NOW! (avoiding future increases of the tax). 
• Planning to pass your property to children or to one of the spouses only
• Involved in a current Inheritance or Donation/Gift process
• In case you have been involved in an Inheritance/Donation process completed after May 2023

Source : TLA Lawyers