The Balearic Islands - Mallorca, Ibiza, Menorca or Formentera - have taken steps in recent years to significantly reduce inheritance and gift tax. In this article, we analyse what the new rules mean for you, both in the case of an inheritance and a gift.
Inheritance tax exemption: what has changed?
Previously, there was a 99 per cent exemption in Balearic Islands straight line inheritance tax. However, the new regulations, effective since July 2025, introduce a 100% exemption on the amount of tax payable. In practical terms, this means that the heirs no longer pay inheritance tax.
This quasi-abolition applies specifically to so-called Group I and Group II heirs:
- Group I: Children and grandchildren under 21 years of age.
- Group II: Children and grandchildren over 21, spouses, certain registered partners, parents and grandparents.
The 100% exemption is a very favourable scheme, but it is linked to the tax residence of the deceased. In principle, an estate of a person who did not live in the Balearic Islands cannot claim this specific exemption, even if the heirs do live there or the assets are located there. The Balearic Islands' legislation is thus primarily intended for the estates of its own residents. It is unclear today how this condition is consistent with EU law.
Example: Suppose Jan, a tax resident in Majorca, dies and leaves his villa worth €1,500,000 to his daughter, Annelies. Under the old rules, Annelies would owe a substantial amount of inheritance tax. However, thanks to the new 100% exemption, her tax bill is reduced to zero euro.
Donations also exempt
The same tax revolution also applies to gifts between living persons. Parents who want to transfer their Spanish property to their children during their lifetime can now do so without the children having to pay gift tax. Again, the 100% exemption for Group I and Group II recipients.
This arrangement makes it particularly attractive not to delay asset transfers but to plan proactively.
Listen to our podcast episode on gifting in Spain.
Spanish capital gains tax for the donor
Here comes the tax that is often forgotten and can cause unpleasant surprises. Although the recipient of the gift (e.g. your child) does not pay gift tax, the donor do face a significant tax bill in Spanish personal income tax.
The principle is as follows: the Spanish tax authorities consider a donation to be a fictitious sale. The donor is taxed on the added value that the property has realised between the time of purchase and the time of the gift. This is a tax on a gain that you did not actually receive, but which is considered realised.
Let's clarify this with a numerical example:
- You bought a flat in Ibiza 15 years ago for €300.000.
- Today, you decide to gift this flat to your son. The market value at the time of the gift is set at €700.000.
- The capital gain for tax purposes is €700,000 - €300,000 = €400.000.
As a donor, you will have to pay Spanish capital gains tax on this €400,000 amount. This tax is progressive, with the following rates (current for 2024):
- Up to €6,000: 19%
- From €6,001 to €50,000: 21%
- From €50,001 to €200,000: 23%
- From €200,001 to €300,000: 27%
- Above €300,000: 28%
In this example, the tax for you as a donor would add up to almost €100,000.
For non-residents a flat rate of 19% applies.
The crucial difference with an inheritance is that this capital gains tax does not apply in case of death. In an inheritance, the capital gains accrued during the testator's lifetime are "waived" for tax purposes. For your heirs, the value at the time of death constitutes the new starting value, which is a huge tax advantage.
Read more about Spanish capital gains tax.
Inheritance and gifting in the Balearic Islands: planning remains essential
The legislative changes in the Balearic Islands are undeniably a gamechanger for wealth planning. Gifts and inheritance between parents, children and partners there is now virtually tax-free.
The main message, however, is that a gift is not without consequences. The potential capital gains tax for the donor can be considerable and makes a careful consideration between a gift in life and a transfer via inheritance imperative.
Each situation is unique and depends on your personal circumstances, the value of your property and your long-term vision. Therefore, always seek personalised, expert advice before taking any steps. A thorough analysis of both Spanish and Belgian or Dutch tax implications is indispensable for successful estate planning.
