In February, the president of Madrid, Isabel Díaz Ayuso, announced a new Inheritance and Gift Tax reform, which is estimated to benefit approximately 14,000 people in the region, fulfilling her electoral commitment of 2023.
Increased IHGT Relief for Group III Beneficiaries
Among the highlights of the proposal, the IHGT relief will increase from 25% to 50% for Group III beneficiaries, i.e., for inheritances and gifts between siblings, as well as between uncles/aunts and nieces/nephews by consanguinity. This greatly facilitates the transfer of wealth for those who do not have a partner or descendants, something that can be perfectly instrumented through a unit-linked life insurance policy, either on a whole of life or mixed term option, depending on the individual circumstances of each case.
Existing Tax Relief for Group I and II Beneficiaries
This measure, which is unprecedented in Spain, will be added to the existing 99% tax relief for Group I and II beneficiaries (e.g., spouses, civil partners, ascendants and descendants). Once again, this will place Madrid at the top of the Autonomous Communities with the lowest taxes in Spain, offering clear advantages for estate and inheritance planning, especially for wealthy families.
Simplified Procedures for Small Gifts
Furthermore, this proposal includes a 100% exemption for gifts between individuals of less than €1,000 without the need for self-assessment. Additionally, for those gifts under €10,000, there would be no need to formalise them in a public deed for the application of Madrid’s IHGT reliefs, clearly simplifying the procedures for the most frequent situations.
Legislative Process and Political Context
Although this announcement only marks the beginning of this initiative’s legislative process, as Ms. Díaz Ayuso currently has an absolute majority in the Assembly of the Community of Madrid, it is expected that it will go ahead in the coming months without obstacles.
Madrid’s Commitment to Tax Competitiveness
Despite accusations of ‘tax dumping’ from the Spanish central government against Madrid and constant rumours about possible IHGT harmonisation in Spain, this announcement makes clear the president’s commitment to the tax-cutting policies that have been in place for more than 20 years in Madrid. Criticism aside, the truth is that Madrid has managed to position itself as a leader in tax competitiveness in Spain and is currently the region with the highest GDP in the country.
Invitation to Review Succession Planning
This initiative is a clear invitation to review the succession planning of the people of Madrid, especially those who do not have a spouse or children.