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Inheritance and gift tax in Madrid: what is it and how much do you pay?

As is well known, the Inheritance and Donations Law is a tax ceded to the Autonomous Communities. Thus, each autonomous region can decide at will whether or not to apply the tax, as well as the amounts that can be reduced or the allowances, if applicable.

In particular, it is common to see on television or to hear someone comment on how in certain Autonomous Communities many people reject the inheritance left to them by their relatives, due to the high tax rates to which they are subjected.

Inheritance and gift tax in Madrid

Well, fortunately, it seems that their tax relief policy continues in the Community of Madrid, as on 14 July 2022, the president of the Community, Isabel Díaz Ayuso, announced that, from 1 January 2023, the tax relief for donations and inheritances between siblings, uncles, aunts and nephews will be increased to 25%.

With this new allowance, a nephew who inherits 250,000 euros from his uncle, for example, with the new allowance, will have to pay 51,357.27 euros compared to the 61,628.72 euros he would have to pay at present (10%). In another case, if the same inheritance were between brothers, for the same amount, he would now pay a total of 58,204.90 euros (15%) compared to the 51,357.27 euros that he would have to pay with the new 25% rebate.

It is worth remembering that a large part of the collection of this tax is due to the high price of housing. For example, in Madrid, the cost of housing has not stopped growing since 2017, which makes this type of tax bonuses or reductions in those taxes directly related to these values very necessary.

Nor is it news to anyone that the Community of Madrid has been, for some time now, one of the autonomous communities that has been applying tax reduction policies. For example, by means of Law 3/2021 of 22 December on the Suppression of Own Taxes, this community abolished the tax on the installation of gaming machines in authorised hotel and catering establishments and the tax on waste deposits, the collection of which was derisory in comparison with Madrid’s GDP.

Harmonisation of inheritance and gift tax

It is not surprising that, after such an analysis, the average citizen wonders why, depending on where you live, you are taxed at a higher or lower rate. This has led to an increase in the number of Spaniards registering in Madrid in order to be able to make donations or testate their children without the draconian conditions imposed by other autonomous communities.

In this tax scenario, many citizens come to the conclusion that taxes should be equalised downwards for the whole country. Others add that wealth tax exemptions should be reduced. However, this could be dangerous as  wealth tax is disappearing across Europe.

Are you in a similar situation and currently the beneficiary of an inheritance or gift? At Imont Legal Services, with lawyers specialising in wills and inheritances, we can advise you and provide you with all the details regarding inheritance and gift tax, answering all your questions.

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