Updated 25 February 2016: Just to clarify, because I’ve had a few enquiries lately, that Paul Montague of Blevins Franks has confirmed that the reduction of 99.9% which was announed in the budget last December, applies to gifts and bequests of assets located in the Canaries and benefiting groups 1 and 2 – direct relatives and spouses. A final criterion which may focus some people’s minds given the forthcoming EU referendum in the UK is that this benefit applies not only to fiscal residents but also to non-residents, providing they are resident in another EU member state. As ever, I am grateful to Paul for his continued support of this website.

Update 31 December 2015:  The budget is HERE, and confirms the reduction. Inheritance tax has effectively been wiped out in the Canaries. Please see THIS page for information about inheritance (and capital gains) tax.

Original post 24 July: As I explain HERE, in 2008 the Canarian government granted tax residents a 99.9% reduction in the tax rate for inheritance between close relatives (parents, children, spouses and family partners). This brought the Canaries into line with some other parts of Spain – inheritance tax has national rules but there are regional variations in application, and the granting of such discounts is one that the regions can make their own decisions on. Some areas offer it, others not. After just four years in operation here, the scheme was abolished in the Canaries in April 2012 because of the economic crisis.

There has now been an announcement by the new Canarian president and the Canarian tax minister that is effectively a direct commitment to reintroduce the discount in next year’s budget. As always, until we see the budget itself we won’t know what the actual situation is, and it should become clear when the budget is proposed this October. Although we will have to wait until then to get an idea, however, it seems that from next year, we will back in the position where virtually no inheritance tax is payable in the Canaries.

I am grateful once again to Paul Montague of Blevins Franks for the following expert comment:

New Canarian president Fernando Clavijo has announced that a 99% reduction for Succession and Gift tax will be introduced for relatives in groups I and II (children and spouses). Regional tax minister Rosa Dávila has further confirmed that the measure will be included in the 2016 Canary Islands budget. This is expected to be approved this October. According to government analysis, this 99% reduction will represent an annual saving of around €30 million for Canarian taxpayers. Dávila went on to say that the Canarian Government intends to introduce further tax reductions for Canarian taxpayers by 2017.

At present, for assets based in the Canary Isles, the recipient beneficiary of these by means of an inheritance or gift, wherever they may live (including the UK), are responsible for the taxes due which are payable in Spain. At the same time, a Canary Islands resident inheritor of an estate or gift outside of Spain is liable to succession taxes in the Canary Isles on this increase in wealth. Other than small allowances available, there is no blanket exemption between spouses as there is in the UK and importantly the taxes due are expected in a relatively short period of time.

This tax is so punitive in some circumstances that some heirs have renounced their inheritances. Additionally, this tax has prompted many residents to move from the Canary Islands to other regions with more generous Succession & Gift Tax allowances.

If approved, this new measure will be a real game-changer for death and gift taxes for nearly every group I and II relative beneficiary. This includes non-residents with assets in the Canary Isles and for residents receiving assets from elsewhere. This 99% allowance will make a huge difference in payable taxes which can in lots of cases, ensure wealth is passed down the blood-line providing obvious benefits over the years ahead. This change should also reduce the numbers of Canary Islands residents leaving and may even tempt the wealthy to reside in warmer climates!

Wills in place should be checked to see if the correct people are to benefit from your estate especially taking into consideration their qualification for this potential succession tax change.

As will be clear, the word this time is that the discount will be available to fiscal non-residents as well as those who are tax resident, a discrimination that was always highly resented. We will have to wait until at least October to get a good idea of what the actual detail is, but this looks like very good news for many on the horizon.

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