There are good news for property owners in Andalusia with the approval of the first tax measure of the new Andalusian Government (coalition of the conservative party and the liberals): the exemption of 99% in the final tax bill of the Inheritance and Donations (Gift) Tax, which is included in the Decree Law 1/2019 published on the 9 April 2019 in the Official Bulletin of Andalusian Government (BOJA).

With the change of government in the “Junta de Andalucía” after the last regional elections and the entrance of the liberal policies into the government, it was expected that one of the star points of the program of both parties would be fulfilled, that is, the legislative amendment to drastically reduce in the region the inheritance and donation tax among the taxpayers of groups I and II, that is spouses, parents, children and grandchildren, as it was already applicable in other regions such as Madrid, Extremadura, Cantabria, Canarias, La Rioja and Murcia.

The modification should not have a great impact on the public coffers since in the previous legislature, and thanks to the pressure of the liberals in order to help to approve the budget of the former Socialist government, the amount exempted from tax due to the reduction in the tax base for those groups was raised to one million € per heir. Now the final tax bill for these groups I and II is 99% bonus and not just for acquisitions “mortis causa” (inheritance) but also, and this is the greatest novelty, for “inter vivos” acquisitions, that is for donations (gifts).

Over the years, we have been regularly consulted by foreign clients who, because of their age, no longer use their homes so often, or have difficulty paying for their maintenance expenses, or worry about the fiscal cost of their inheritance for their loved ones, or simply want to help their descendants to develop their life projects by giving them money or property while they live instead of having to wait for them to inherit upon death. Until now donations had unfortunately a fiscal cost that in most of the cases made it unfeasible so there was no other choice but to wait until death to transfer the wealth, or part of it, to the descendants.

Before this change in the law the tax cost of a donation (gift) was a lot higher than the tax cost of an inheritance. For example, an inheritance of € 990,000 received by a single heir from groups I and II had no fiscal cost due to the reduction of one million in the tax base, but in the case of a donation the tax cost of receiving those € 990,000 went up to € 277,500.

In the same way, in those cases in which the inheritance surpassed the million euros of reduction in the tax base, the tax skyrocketed. For example, if the inheritance amounted to € 1,400,000, the tax exceeded € 80,000.

With the new legislation approved, the amount to be paid would be 1% of the resulting tax bill, since the remaining 99% is not due, that is, in an inheritance of € 990,000 for a single heir the tax would remain zero euros and in the case that the inheritance figure amounted to € 1,400,000, following the previous example, the tax would be just over € 800.

Likewise, the donation of € 990,000 that before this reform had a tax cost of € 277,500 would now be reduced to € 2,775.

Given that this type of regional legislation can change every four years with the elections to the regional parliament and the entry into the government of parties that advocate a system with a greater fiscal burden, and also having in mind that this laws could likewise be changed by its regulation at a national level, and taking into account that the socialist (PSOE) and their potential government partners have publicly declared that, at best, they are in favor of seeking the harmonization of the inheritance and donation tax in a common rate and only reduce it or bonus it in cases of low income and wealth, it is very convenient to bear in mind that now an opportunity window has been opened for all those people concerned about the fiscal cost that their inheritance could have on their heirs or those who want to help their children in life do it without delay and with a minimum cost.

The Spanish Supreme Court, through several sentences issued during year 2018, has recognized the application of these regional regulations on the Inheritance and Donation Tax to any citizen regardless of whether they reside within or outside the EU or the EEA, so now those would be applicable also after Brexit.

Summing up, the new local legislation in the matter for Inheritance is that 99% of the quota of the tax for acquisitions by spouses and direct relatives is bonus, while the regional reductions on the tax currently in force are maintained, in particular the reduction of 1,000,000 euros on the taxable base, with the purpose of not harming acquisitions for inheritances of up to this amount, since otherwise they would have to go from not paying to do it at a rate of 1%.

In addition, for the Donation or gift also 99% of the tax bill for acquisitions by spouses and direct relatives is rewarded. All this means basically the practical elimination of the tax for these groups of taxpayers.

The new Andalusian Government intends to make Andalusia an attractive community for investment and competitive from a fiscal point of view, as well as contribute to the normalization of tax domiciles and the generation of economic dynamism.