Canarian Government’s 2020 budget graduates Inheritance and Gift Tax discounts for groups II and III heirs but first €55,000 of tax due remains almost wholly exempt

Updated 3 January 2020: Thanks to Paul Montague of Blevins Franks for this confirmation and explanation of the revised measures for inheritance and gift tax contained in the regional 2020 budget approved by the Canarian Government. The rules apply from 1 January 2020, and BF recommends that anyone who is concerned about inheritance issues should review their affairs to make sure they understand the changes and how they might be affected because their tax bills could be higher than they originally anticipated.

Succession & Gift Tax

The biggest changes approved in the new 2020 Canary Islands budget affect the SSGT rules.

 Inheritances

  • Group I beneficiaries: 99.9% relief is still applicable.
  • Groups II and III beneficiaries:

–       First €55,000 of tax due (i.e. after applying the tax rates and multipliers) always get a 99.9% relief.

–       Any excess over €55,000 of tax due will get a variable relief depending on the calculated tax due, as follows:

TAX DUE (CUOTA TRIBUTARIA)

% RELIEF

€55,000 – €65,000

90%

€65,000 – €95,000

80%

€95,000 – €125,000

70%

€125,000 – €155,000

60%

€155,000 – €185,000

50%

€185,000 – €215,000

40%

€215,000 – €245,000

30%

€245,000 – €275,000

20%

€275,000 – 305,000

10%

More than €305,000

No relief applicable

 Lifetime gifts

  • Group I beneficiaries: 99.9% relief is still applicable.
  • Group II beneficiaries:

–       First €55,000 of tax due (i.e. after applying the tax rates and multipliers) always get a 99.9% relief.

–       Any excess over €55,000 of tax due will get a variable relief depending on the calculated tax due, as follows:

TAX DUE (CUOTA TRIBUTARIA)

% RELIEF

€55,000 – €65,000

90%

€65,000 – €95,000

80%

€95,000 – €125,000

70%

€125,000 – €155,000

60%

€155,000 – €185,000

50%

€185,000 – €215,000

40%

€215,000 – €245,000

30%

€245,000 – €275,000

20%

€275,000 – 305,000

10%

More than €305,000

No relief applicable

In order to obtain the relief for gift tax purposes, it must be recorded in a public deed (i.e. a notary will have to be involved).

 Updated 20 December 2019: I’m grateful once again to Paul Montague of Blevins Franks who has advised me that the Canarian Government has now confirmed that from 1 January 2020 the 99.9% relief for inheritance and gift tax (Impuesto sobre Sucesiones y Donaciones -ISD) will no longer be available. As I explained in October, this was planned by the new PSOE Government in order to budget for a 12% increase in social spending. BF says that the new rules are not completely straightforward, with what looks like progressive relief rather than a complete ban on any relief. Indeed, a part is always relieved at 99.9% and the balance will depend on the total value of the estate, though it appears that the threshold for tax to be applied will be €55,000. BF will be preparing detailed advice in the near future and I’ll post what they say at that point. For the moment, though, it is now clear that inheritances and gifts in the Canaries are no longer virtually tax free. As I said in the previous information, however, this discount has been removed before and reinstated so it could well be restored in the future.  

Original post 25 October: From 1 January, the Canarian Government is likely to remove the 99.9% reduction on Inheritance Tax (Impuesto de Sucesiones y Donaciones) for Group 2 beneficiaries. Inheritance Tax is applied nationally, with autonomous regional governments able to offer reductions as they deem fit: here in the canaries the deduction has been in place since 2008 in the Canaries, but the new PSOE Government’s draft budget for 2020 includes a 12% increase in social spending and the removal of the Inheritance Tax discount is part of the way in which this will be financed – there will also be a rise in the top rate of income tax and an increase in IGIC from 6.5% to 7%.

The discount was actually removed in 2012 during the economic crisis before being reinstated in 2016, so this is not the first time  this has happened. It is therefore likely that in coming years it will be re-established. From January, however, and at least for 2020, there is likely not to be a discount for Inheritance Tax purposes for heirs in Group 2.

The plans envisage instead a variable progressive relief depending on the inheritance’s value, with bequests under €300,000 exempt while those between €300,000 and €350,000 receive 90% tax relief. The relief will be reduced by 10% for each further €100,000 of the inheritance until there is no reduction at all for inheritances over €1.1 million.

Please note that this is only envisaged as applying to Group 2 heirs, with Group 1 inheritances still subject to the 99.9% discount. It remains to be clarified whether these new rules, if implemented in the final budget, will also apply to gifts. There is further information HERE on rates and how to work out a computation of liability, though as ever, qualified professional assistance should always be engaged for tax matters. 

2 Comments

  1. Who are group 1 heirs?

  2. Author

    I had thought I’d explained on the link to the info page but now I look I find I failed to do so! I’ll correct that! Meanwhile:

    Group I: children under 21.
    Group II: spouses, children over 21, grandchildren, and parents and grandparents.
    Group III: brothers and sisters, aunts and uncles, nieces and nephews.

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