Canaries Government to Reintroduce Inheritance Taxes

The government of the Canary Islands has approved plans to reestablish inheritance tax, among a raft of other measures, in an attempt to close a €200m gap in income and outgoings that has arisen in the government’s coffers. In addition to the inheritance tax increases, there will also be increases in the local version of VAT – known as IGIC – and the taxes paid on petrol. The measures are brought under legislation introduced in Ley 04/2012.

The reestablishment of inheritance tax is expected to bring in between €80 and €100 per annum while the other measure such as the increase in the IGIC rate from 5% to 7% are expected to bring in considerably less.

The government expects to increase income from inheritance tax by reducing the extent and application of exemptions. This has been achieved by for example, changing the exemption applied to children under the age of 18. Whereas before, such a beneficiary of an estate who was under the age of 21 would receive a blanket exemption from inheritance taxes on estates worth up to €1m this is now separated in to different ranges, specifically:

  • Under 10 years of age an exemption up to €138,650
  • Between 10 and 15 years old the exemption reduces to €92,150
  • Between 15 and 18 years old the exemption goes down to €57,650

The exemption has been improved slightly for those aged 19 -21 as they now have a blanket exemption of €40,400 before taxes become payable.

Likewise for children over 21 years of age and spouses the exemptions are now slightly better  with amounts of €23,125 and €40,400 now applied respectively.

However, the most important change has been the elimination of the special ‘deduction’ applied to any taxes payable according to the above rules between spouses and children which was fixed at 99.9%. This had all but eliminated the tax as between these close relations who constitute the vast majority of beneficiaries of inherited estates.

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