Parliament approves the law to reduce inheritance and gift tax and extend the tax reform

Nov 15, 2023 | Current affairs, Featured, Revista Lloseta, Thursday Daily Bulletin, Tradition

With the green light from the parliamentary majority, the Govern’s policy of tax cuts is consolidated

Numerous tax deductions have been introduced during the process, at the proposal of different parliamentary groups, to benefit the citizens of the Balearic Islands.

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Law to reduce inheritance and gift tax and extend the tax reform

The Parliament of the Balearic Islands has approved this Tuesday the law from the Decree Law 4/2023, of 18 July, amending the Legislative Decree 1/2014, of 6 June, which approves the Consolidated Text of the legal provisions of the Balearic Islands in the field of taxes ceded by the State. The legislative text consolidates the 100 % rebate on inheritance and gift tax between ascendants, descendants and spouses; 50 % between siblings, and between uncles, aunts, uncles and nephews when there are no direct descendants, and 25 % when there are direct descendants. According to data from the Tax Agency of the Balearic Islands, 86% of the inheritances benefiting from the rebate do not exceed 700,000 euros, practically 9 out of 10.

In the processing of the Bill, action has also been taken in the area of donations to favour access to housing. Thus, the taxation of donations of real estate that must constitute the habitual residence of the person receiving the donation is eliminated, provided that this person is a child or descendant of the donor. If the donee is a member of a large family, or has a physical disability equal to or greater than 65%, or a mental disability equal to or greater than 33%, it will not be required to be the first habitual residence.

In addition, the value of these assets must be stated in the public deed, which in each case may not exceed the reference value increased by 20%. When this reference value does not exist or cannot be certified, the market value will be taken into account. “The aim of this Government is to avoid as far as possible artificial increases in the value of real estate, in order to avoid paying personal income tax when filing the tax return”, explained the Vice-President and Minister of Economy, Finance and Innovation, Antoni Costa.

There is also a 100% reduction of the transfer tax (ITP) when a young person under 30 years of age or a disabled person wants to buy their first main residence, provided that the property does not exceed 270,151 euros and the income is less than 52,800 euros in the individual tax return or 84,480 euros in the joint tax return. In addition, the tax is reduced by 50% for the purchase of the first main residence for young people under 35 years of age, and for the purchase of the main residence for families with disabled dependents, whether ascendants or descendants, large families and single-parent families. In the case of large families, the scale for the purchase of property is increased, and a maximum of 350,000 euros can be reached to take advantage of the lower tax.

“Citizens deserve to have the money in their pockets to cope with economic difficulties and make ends meet. It was long overdue to act immediately, and the Government of the Balearic Islands did so as soon as it assumed full responsibility,” said Costa.

Numerous improvements have been made to the text, especially in the form of tax deductions. “It is a bill in which everyone has been able to make contributions, because this is the will of the Govern: to always achieve the maximum possible consensus with all the parliamentary groups,” Costa stressed.

For example, with the approval of the text it is planned to increase the threshold for the ITP rebate to a maximum of 40% of the amount in the islands, geographical areas or municipalities that deviate substantially from the price of housing to the whole of the Balearic Islands. The rebates, however, will only apply to the first 270,151 euros. But in this way it is possible for more people to take advantage of the tax reductions, and help to increase access to housing.

Tax deductions

On the one hand, in addition to the cases already provided for, there is a 10% increase in the amounts corresponding to the minimum amounts for the taxpayer, for descendants and for disability, which form part of the personal and family minimum, for the following over 75 years of age, for the second descendant and for descendants.

On the other hand, there is an increase in the autonomous deduction for renting the habitual residence in the territory of the Balearic Islands. Taxpayers under 36 years of age and also those over 65 years of age who do not carry out any work or professional activity will be able to deduct 15% and go from a maximum of 440 euros to 530 euros per year. If you are under 30 years of age, have a disability equal to or greater than 33%, or are the father or mother of a large or single-parent family, the deduction may be 20% up to a maximum of 650 euros per year. These same groups will also see an increase in the deduction for the purchase of textbooks, from 220 euros per child to 350 euros.

The deduction for expenses related to children under 6 years of age will also be increased for reasons of conciliation. This refers to stays of children from 0 to 3 years old in nursery schools or kindergartens; custody services, canteen service and extracurricular activities for children from 3 to 6 years old in educational centres, and the hiring of a person to look after the child. The deduction will be 50%, with a maximum of 900 euros per year, when the taxpayer is under 36 years of age, is a single-parent or large family or has a disability equal to or greater than 33%.

In addition, large and single-parent families, in the three deductions mentioned -for the rental of the main residence, for the purchase of textbooks and for work-life balance expenses-, will be able to increase the maximum taxable base of 52,800 euros in joint taxation, or 33,000 euros in individual taxation, by 20%.

Finally, this Tuesday, three more tax deductions have been agreed upon at the proposal of different parliamentary groups. The first, of 400 euros to deal with the increase in interest rates and variable mortgages. The second, of 1,800 euros for each descendant who is economically dependent on the taxpayer and is studying outside the island of the Balearic archipelago where the taxpayer’s habitual residence is located, with a limit of 50% of the regional tax liability. And thirdly, a new deduction is created for birth and adoption of 800 euros for the first child, 1,000 for the second, 1,200 for the third and 1,400 for the fourth or subsequent children.

“We lower taxes, we increase deductions, we increase savings and the disposable income of families in the Balearic Islands, and at the same time we raise the spending ceiling by 418 million euros. We were told that this was not possible, and this Government is proving exactly the opposite. We have substantially increased the budgets allocated to social spending, to improving education, health and social services,” said the Vice-President of the Government.