Inheritance Tax on the Canary Islands

Is Spanish or Canary Islands Inheritance Tax Law Applicable?

Across Spain uniform regulations concerning inheritance tax generally apply. However, the autonomous regions of Spain have the right to deviate from these regulations and enact their own provisions. The Canary Islands last exercised this right in November 2015 by implementing special provisions for inheritance tax.

Is There a Free Choice of Legislation?

Before 2015, respective regional law was only applicable if the inheritance case in question had a specific connection to the autonomous region, which was not the case for many Germans. As of 1 January 2015, beneficiaries, whether or not they have any connection to the Canary Islands, can, in principle, choose the law of the Canary Islands, which allows them to benefit from more favourable regulations.

How are Tax Allowances Determined?

Inheritance tax allowance depends on the heir’s degree of kinship in relation to the deceased. These allowances are as follows:

• for children up to 21 years old: between €40,400 and €138,500
• for children over 21 years old: €23,125
• for grandchildren and great-grandchildren: €18,500
• for spouses: €40,400
• for siblings, nieces, and nephews: €9,300

Equal Treatment of Registered Civil Partnerships

Registered civil partners are treated the same way as spouses and are entitled to the same tax advantages.

Is There a Tax Exemption for Family Homes?

The main residence of the deceased can be deducted from the taxable base at 99% of its value up to a maximum amount of €200,000. The conditions for this are as follows:

• The heir is either a direct relative of the deceased, or an elderly collateral relative (over 65 years old) who had lived with the deceased for at least two years.
• The heir must retain the property for at least five years.

This applies to all tax categories.

Tax Liability Deductions

Depending on the tax year and tax category, the Canary Islands grant various tax liability deductions. For inheritance cases between the years 2016 and 2018, a 99.9% reduction was introduced for taxpayers in Categories I and II. From 2019 onwards, this deduction shall also apply to Category III. Since 2020, the 99.9% deduction has been scaled as follows:

• Tax Category I: regardless of tax liability
• Tax Categories II and III: up to €55,000. Amounts above this sum are discounted on a graduated basis.

Latest Regulations Effective as of 6 September 2023

As of 6 September 2023, the rules for inheritance and gift tax on the Canary Islands have been further revised. For acquisitions from this date onwards, a deduction of 99.9 % of the tax liability will be granted to taxpayers in tax categories I, II and III.

Is it Necessary to Submit a German Tax Declaration?

If there are links to Germany, German gift tax may also be incurred. According to Section 30 of the Inheritance Tax and Gift Tax Act, the donee must report any gift to the tax office responsible for administering the inheritance tax within three months of becoming aware of the acquisition. The tax office may demand that each party involved in the gift-giving transaction file a tax return within a specified period. This period may be extended upon request.

When is Spanish Inheritance Tax Due?

In Spain, inheritance tax must be paid no later than six months after the death of the testator.

When is Gift Tax Due in Germany?

Gift tax in Germany is due within one month after the tax assessment notice has been issued.

CPA Nyikolaj Szmolenkov M.A.