Oct 3, 2023 | News

We return to the full exemption on Inheritance and Gift Tax in the Canary Islands.

 On the past 5thSeptember, Decree-Law 5/2023 of 4th September was published, by which the Canary Islands Government approved the exemption of the tax liability for Inheritance and Gift Tax to 99.9% of the tax rate.

This modification means returning to the situation that existed on 31st December 2019, once again allowing the tax liability for acquisitions “mortis causa” or for lucrative acquisitions “inter vivos” (donations) to be exempted by 99.9% of the tax rate.

Thus, regarding the tax exemption for kinship, in the case of “mortis causa” acquisitions, the following are included:

  • Taxpayers included in groups I and II (parents, children, adopted children and the spouse of the deceased) and in group III of kinship, made up of collateral relatives of the second degree (siblings) and third degree (uncles, nephews, nieces), as well as ascendants and descendants by affinity (parents-in-law, sons-in-law, daughters-in-law).

In relation to the application of the exemption in the case of lucrative “inter vivos” donations or acquisitions, are included:

  • Taxpayers included in groups I and II (parents, natural or adopted children and spouse of the deceased).

Provided that the donation is formalised in a public document, such formalisation not being necessary in the case of insurance contracts that must be taxed as a donation. This exemption will not be applicable to donations that in the previous 3 years have benefited from the exemption that is now established, unless, in such period, the “mortis causa” acquisition takes place.

In contrast to what happens in the case of mortis causa transfers, in the case of “inter vivos“  acquisitions (donations), no exemption will be applicable to kinship Group III comprising all collateral relatives of second (siblings) and third degree (uncles, nephews), as well as all ascendants and descendants by affinity (parents in-law, sons-in-law, daughters-in-law)

The Inheritance and Gift Tax exemption may be applied with effect from September 6th, 2023.

The approval of this regulation is in line with the proposals put forward at a national level for the abolition of this tax, although there is still a lot to go in the matter.

Our tax team at CABRERA RODRIGUEZ ETL GLOBAL is at your disposal to clarify the terms and scope of this regulatory modification. We strongly recommend and adequate planning in case of any disposition by donation, given the implications it may have for donors in terms of Personal Income Tax.