Leonardo Cárdenas in Expansión Dying in Catalonia is going to be very expensive

Leonardo Cárdenas in Expansión: Dying in Catalonia is going to be very expensive

Leonardo Cárdenas Armesto, partner tax advising and tax law department. AGM Abogados. 


The following article by our partner Leonardo Cárdenas on inheritance tax in Catalonia was published in Expansión newspaper on Monday, 27 January:


The draft bill on tax measures for 2020, proposed by the Catalonia regional government and pending approval by the Catalonian Parliament, will change and create new tax categories. One category that will be affected will be the inheritance and gift tax (IGT).


The conclusion drawn from analysing the urgency of the proposed measures is that there will be a significant increase in inheritance tax that will be endured by the heirs who are children of residents in Catalonia.


Therefore, the tax discount that the children enjoyed, which is currently up to 99% of the tax payable for smaller amounts, will be reduced to 60%, with a maximum reduction of 28.92%, compared with 57.37% in the current regulations.


At present, when children or spouses inherit property or stakes in family companies as part of the assets making up the inheritance or gift to be received, they can apply a 95% reduction to their value.

That reduced value will be included with the rest of the property to be received by each one, to which the aforementioned discount will be applied, and will be halved (e.g. instead of 99%, it will be 49.5%).


Conversely, according to the draft bill, any tax discounts will be eliminated when the tax benefit is applied to a family company, with the consequent tax increase.


They are not the only proposed measures. New elements that were reviled in the past will be included once again, for instance, the pre-existing assets of the inheritance beneficiaries. Therefore, when spouses or children with assets exceeding €500,000 have to inherit, their tax bill will increase by 10%-20%.


As an example, let’s say that, when a son and daughter inherit property worth €500,000 and one million euros from their father and their pre-existing assets are €500,001, the result will be as follows:


  Son Daughter
Inheritance 500,000.00 € 1,000,000.00 €
Current regulations 1,110.00 € 28,490.00 €
Catalonian government proposal 30,723.00 € 113,451.25 €
Tax increase 29,613.00 € 84,961.25 €
Tax increase (%) 2,767.83 % 398.21 %


As can be seen, the tax increase in inheritances and gifts from parents to children after the proposed change is approved will mean that the tax burden will fall on the Catalonian middle class once again.


If we add to this that the Spanish government will most likely approve the “reference prices” for properties, which will considerably increase the various taxes on property values, including the IGT, the tax pressure will be much higher than in other regions, where the tax treatment for inheritances is more negligible, and the tax gap with respect to Madrid, among other regions, will widen significantly.


Therefore, our political representatives should reflect on this so that no tax changes are approved that will penalise the transfer and continuity of companies in Catalonia, the driving force that generates employment and wealth in the country.


In any case, if the proposed reforms are finally approved, the Catalonian taxpayers must plan the best way to mitigate the impact of the tax bill on their inheritances once again.


You can read the Expansión article here.


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