The document summarizes inheritance tax deductions and rules in the Balearic Islands. It discusses how in 2001, Spain devolved inheritance tax rates and deductions to regional governments. Most regions initially only granted deductions to resident beneficiaries, but a 2014 EU ruling deemed this discriminatory. As a result, Spain enacted new legislation making deductions available to non-resident EU citizens as well. The summary then outlines specific deductions and tax rates that apply in the Balearic Islands for different beneficiary groups and asset types.

1. Inheritance Tax Deductions
In the Balearic Islands

2. This presentation has been updated and is valid for 2017.*
*Advocate Abroad does not accept responsibility for losses of any type consequent upon reliance on the
information contained in this presentation. Please consult a lawyer before acting.
Inheritance Law in the Balearic Islands
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3. In 2001 the Spanish government devolved the power to set
inheritance tax rates and deductions o the regional
parliaments.
Inheritance Law in the Balearic Islands
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4. Most regions enacted tax laws that applied generous
deductions only to those beneficiaries who were resident in
the region over the balance of the previous five years.
Inheritance Law in the Balearic Islands
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5. Recently, on September 3rd 2014, the European Court of
Justice ruled that such laws were discriminatory and contrary
to European Law.
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Inheritance Law in the Balearic Islands

6. Accordingly, the Spanish government has enacted new
legislation (Ley 26/2014) which makes any deductions that
may be applied to residents also available to non-residents
who are EU citizens.
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Inheritance Law in the Balearic Islands

7. The main impact of the new legislation is as follows:
1) If the deceased was a non-resident, living in another
European country then the beneficiary may apply those
deductions and exemptions provided by the regional
government in which the majority of the inherited assets
are located.
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Inheritance Law in the Balearic Islands

8. 2) If none of the assets to be inherited are located in Spain,
then the resident beneficiaries should apply the legislation
enacted by the regional government where they are normally
resident.
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Inheritance Law in the Balearic Islands

9. 3) If the deceased was resident in one of the Spanish regions
and the beneficiaries were non-resident, and living in another
European Union country, then they may apply those
deductions and exemptions available to residents of the
region in which the deceased was resident.
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Inheritance Law in the Balearic Islands

10. The regional level deductions available in the Balearic
Islands were enacted by the parliament in Palma and in their
current form are specified in Law 22/2006.
Inheritance Tax Laws
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11. All deductions, discounts and tariffs that apply to those who
are married will be applied to those who, although unmarried,
are registered as ‘established couples’ as per Law 18/2001.
Inheritance Tax Rules for Common Law Couples
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12. Personal Deduction Due to Kinship with
Deceased
Personal deductions are applied according to group classification:
Group I Children, including adopted children, under the age of 21
Group II All other descendants, spouses and parents
Group III Close relatives such as brothers and sisters, grandparents,
aunts and uncles
Group IV More distant relatives
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13. The following are the personal exemptions available in the
Balearic Islands:
Group I Deduction of €25,000 plus €6,250 per year under
the age of 21 up to a maximum of €50,000
Group II Deduction of €25,000
Group III Deduction of €8,000
Group IV Deduction of €1,000
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14. If the beneficiary suffers a physical disability :
● An exemption of €48,000 in addition to any personal
deductions if disability of a degree > 33% and < 66%
● If the disability is > 66% then the additional discount
increased to €300,000
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15. If the beneficiary suffers a mental disability:
● If the disability is a mental disability > 33% an additional
deduction of €300,000 may be applied
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16. Inheritance of the Family Home
The spouse, descendants, parents or any elderly relative
(in the latter case, who has lived with the deceased for
two years prior to date of death) may deduct 100% of the
value of the main family home - up to a value of €180,000
each - as beneficiaries
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17. Inheritance of the Family Home
The property may not be sold for a period of 5 years after
the inheritance. The main family home is as defined for
the purposes of legislation dealing with income tax.
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18. Deductions in transfer of Family Business
● Tax deduction of 95% of the value of the business
● Must be children or spouse to benefit.
● If no child or spouse, any relative 'to third degree of
consanguinity' may benefit from exemption
● The business may not be sold within a period of 5 years
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19. Investment of Inheritance in New Business
● Deduction of 50% shall be applied to inheritance of
money that is invested in a new business in the Balearic
Islands, up to a maximum of 200,000 €
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20. Tax deductions on income from Life Insurance:
Where the beneficiary is a spouse, descendant or parent then a
deduction may be made of 100% up to €12,000 of any income
derived from a life insurance policy held by the deceased.
There is no limit to this exemption if death was caused by an act
of terrorism.
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21. Special Rules
Where the same assets are subject to two or more processes of
inheritance within a period of 12 years, in the second and any
subsequent inheritance processes, the taxable amount shall be
reduced by any amount of tax paid in previous inheritance
processes.
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22. Special Rules
A 99% discount shall apply to any inheritance tax payable by a
child of the deceased, being under 21 years of age on the date
of death.
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23. Other Deductions:
As a general rule the following deductions may be made on
any estate:
● Funeral Expenses
● Final Medical Expenses of the Deceased
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24. Other Deductions cntd:
Debts held by the deceased that are evidenced by public
documents e.g. a mortgage
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25. Once the final amount of tax payable is determined then it is
necessary to apply the relevant rate.
Tax Rates in The Balearic Islands
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26. Tax Rates in The Balearic Islands
Taxable Sum Tax Payable
On This Sum
Any
Remainder
Up To
Applicable
Rate on
Remainder (%)
0 8000 7,65
8000 612 8000 8,5
16000 1292 8000 9,35
24000 2040 8000 10,2
32000 2856 8000 11,05
40000 3740 8000 11,9
48000 4692 8000 12,75
56000 5712 8000 13,6
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27. Tax Rates in The Balearic Islands
Taxable Sum Tax Payable
On This Sum
Any
Remainder
Up To
Applicable
Rate on
Remainder
(%)
64000 6800 8000 14,45
72000 7956 8000 15,3
80000 9180 40000 16,15
120000 15640 40000 18,7
160000 23120 80000 21,25
240000 40120 160000 25,5
400000 80920 400000 29,75
800000 199920 And above 34
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28. These new tax rates replace the virtual exemption to inheritance tax
that these groups had previously benefited from.
Special Tax Rates for Groups I & II
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Taxable Sum
Tax Payable On This
Sum
Any Remainder Up
To
Applicable Rate on
Remainder (%)
0 0 700,000 1
700,000 7000 300,000 8
1,000,000 31,000 1,000,000 11
2,000,000 141,000 1,000,000 15
3,000,000 291,000 and above 20

29. Existing Wealth
Once the relevant tax rate has been applied the result is
multiplied by a coefficient determined by the existing wealth of
the beneficiary as well as the group to which they belong:
Group
Existing Wealth (€) I & II III IV
0 to 400,000 1 1.6575 1.7
400,000 to 2,000,000 1.05 1.7 1.785
2,000,000 to 4,000,000 1.1 1.785 1.87
More than 4,000,000 1.2 1.955 2.04
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30. Existing Wealth
The Groups referred to signify the following beneficiaries:
Group I Children, including adopted children, under the age of 21
Group II All other descendants, spouses and parents
Group III Close relatives such as brothers and sisters, grandparents,
aunts and uncles
Group IV More distant relatives
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31. Each year in Spain thousands of expats pay more
tax on inheritance than they should – simply
because they fail to follow some simple rules.
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32. To find out where to get expert advice, in English, about how
to reduce your liability for inheritance tax, go to:
Expert Probate Services in the Balearic Islands
Expert Probate Services in the Balearics
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