Valencia Abolishes Inheritance and Gift Tax

Valencia eliminates Inheritance and Gift Tax. The Valencian regional government has launched a major reform of the Inheritance and Gift Tax (ISD), introducing a 99% reduction in the tax liability for asset transfers between close family members.

This measure, retroactively effective from May 28, 2023, effectively abolishes the tax for the main categories of kinship and aligns the Valencian Community with other autonomous regions in Spain that already offer similar tax benefits. The Inheritance and Gift Tax is a regionally regulated tax in Spain, meaning that each autonomous community can set its own rates, exemptions, and deductions. Below, we analyze the scope of this reform, its key requirements, and expected future developments.

 

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Detailed Analysis of the New Tax Relief Measures

Law 6/2023 of November 22 introduces a differentiated framework for tax relief depending on the nature of the asset transfer:

1. Mortis Causa Acquisitions (Inheritances and Bequests): A 99% tax relief is granted for assets inherited due to death, including life insurance payouts that are added to the estate. Beneficiaries must belong to Groups I and II under Article 20.2 of Law 29/1987 (descendants or adopted children, ascendants, or the deceased’s spouse).

2. Inter Vivos Transfers (Gifts): The reform also introduces a 99% tax relief for donations and other gifts made during the donor’s lifetime. The relief extends to a broad group of family members: spouse, parents or adoptive parents, children or adopted children, grandchildren, and grandparents.

This is particularly relevant as it not only simplifies the existing kinship-based deductions but explicitly includes the spouse as a direct beneficiary—something not previously granted at this level.

Key Conditions for Applying the Tax Relief

To benefit from these reductions, certain formal requirements must be met:

• Public Document Requirement: For inter vivos (lifetime) transfers, the donation must be formalized in a public deed. This is a strict requirement repeatedly upheld by case law.

• Proof of Source of Funds: When the gift consists of cash or financial assets, the origin of the funds and the method of delivery must be stated within the public document itself.

Retroactive Application and Enforcement

The 99% tax relief applies retroactively from May 28, 2023. This retroactivity ensures that any taxable events occurring from that date onward fall under the new regime—provided the law was passed within the six-month legal window allowed for settling the tax. This approach ensures that no affected taxpayer will be subject to the old regulations.

Reductions on the Tax Base (Before the 99% Relief)

Before applying the 99% relief, note that Valencian tax law continues to allow a range of base reductions—that is, reductions in the taxable amount before calculating the tax due. These are established mainly under Article 10 bis of Law 13/1997 and vary by kinship and other circumstances. They remain compatible with the 99% reduction:

• Children/adopted under 21: €100,000 + €8,000 per year under 21, capped at €156,000.

• Children 21 or older, spouse, parents, grandparents: €100,000.

• Grandchildren: Same as children, with identical limits.

• People with disabilities: €120,000 or €240,000 depending on the degree of disability, also compatible with kinship reductions.

• Family business or primary residence transfers: Up to 99% reduction for business assets and 95% for the main residence, subject to conditions, such as holding periods and value limits (e.g., €150,000 per heir for primary residence).

Future Expansions of the Tax Relief (2026–2027)

The move toward tax relief on asset transfers is ongoing. Law 5/2025 of May 30 includes plans to extend tax benefits to collateral relatives (Group III), which includes siblings, uncles/aunts, and nephews/nieces:

• From June 1, 2026: A 25% relief will apply.

• From June 1, 2027: This relief will increase to 50%.

✅​ Why Proper Planning Matters

The abolition of the Inheritance and Gift Tax in Valencia represents an unprecedented tax break for family asset transfers. The 99% reduction opens the door to strategic estate planning and lifetime asset transfers.

However, as outlined above, these benefits are not automatic. Proper fiscal and succession planning is essential. At Adlanter, we can assess your specific asset situation to ensure maximum tax savings and legal compliance.