TAX UPDATES IN THE VALENCIAN COMMUNITY INHERITANCE AND GIFT TAX

(Effective from November 24, 2023, but applicable to situations arising from May 28, 2023)

Modifications for inter vivos transactions (gifts):

• The following updates are established:

Regarding the application of the kinship reduction of up to 100,000 euros (or 156,000 euros in the case of donees who are descendants under 21 years of age)

The application of the reduction to donations made between spouses is introduced, where it previously was not applicable.

The requirement for the donee (recipient of the donation) to have had a pre-existing wealth (before the donation) of a maximum of 600,000 euros, to be eligible for the kinship reduction of up to 100,000 euros (or 156,000 in the case of descendants under 21 years of age), is removed. Therefore, the kinship reduction can be applied regardless of the donee’s pre-existing wealth.

In direct donations from grandparents to grandchildren or from grandchildren to grandparents, the requirement that the parent (of the grandchild) and child of the grandparent had to have deceased prior to the donation for the kinship reduction to be applied is removed. Therefore, the kinship reduction can be applied in direct donations from grandparents to grandchildren or from grandchildren to grandparents even if the parents are alive.

The three scenarios in which the reduction for chain transmissions could not be applied are eliminated:

When the now donor had been entitled to the reduction when acquiring assets of equivalent value to those being donated, in a donation made within the 10 years prior to the current donation.

When the donee (now receiving the donation) had made a donation to someone other than the current donor, of assets of equivalent value to those now received, within the 10 years prior, and the reduction had been applicable.

When the now donor had acquired the assets now being donated, or others of equivalent value, through inheritance within the 10 years prior to the current donation, as a result of the pure and simple renunciation by the now donee, and had been entitled to the application of the kinship reduction in case of inheritance.

In all these cases where the kinship reduction was not applicable, it will be applicable for donations from May 28, 2023, onwards. Therefore, one does not have to be concerned with previous inheritances or donations received or made.

Regarding the application of the reduction for the donee’s disability

In the case of donees with physical or sensory disabilities of 33% or higher, a reduction of 120,000 euros will also apply to donations between spouses, to which it was not previously applicable.

In the case of donations between grandparents and grandchildren, the requirement that the parent (of the grandchild) and child of the grandparent had to have deceased prior to the donation for the disability reduction to be applied is removed. Therefore, the disability reduction can be applied in direct donations from grandparents to grandchildren or from grandchildren to grandparents even if the parents are alive.

Regarding the application of bonuses to the final tax quota in favor of the donee (recipient)

A 99% bonus is reintroduced, which will now apply to donees who are spouses, parents, adopters, children, adoptees, grandparents, or grandchildren of the donor. For the application of this bonus, it is required that the donation be made in a public document (usually a public deed) or formalized in such a manner within the tax declaration period (one month from date to date). Additionally, when money, deposits, or similar are donated, the origin of the donated money must be justified in the deed, as well as the means by which the donation is made (in cash, transfer, etc.). Therefore, it shifts from having no bonus to paying 1% of the final tax quota.

A 99% bonus is introduced for donees who have a physical or sensory disability of at least 65%, or who have a psychological disability of at least 33%. Therefore, it shifts from having no bonus to paying 1% of the final tax quota. This bonus does not require that the donation be made or formalized in a public document and is applicable to the donee regardless of their relationship with the donor, even if there is no kinship. In case of kinship, this bonus is incompatible with the previous bonus for kinship; one or the other would apply.

An important point is that quota bonuses are applied to the value of voluntarily declared assets and rights, whether within the tax presentation period or outside of it, but without having received a prior requirement from the Administration. In the case of an undeclared donation discovered by the Administration, the bonuses would not be applicable.

Modifications for mortis causa acts (inheritances): The following updates are established:

The bonus of the final tax quota for heirs/legatees who are descendants and adopted children under 21 years old increases from 75% to 99%. Therefore, they will only pay 1% of the final quota.

The bonus of the final tax quota for heirs/legatees who are descendants and adopted from 21 years old, ascendants and adopters, and spouses, increases from 50% to 99%. Therefore, they will only pay 1% of the final quota.

The bonus of the final tax quota for heirs/legatees who are individuals with physical or sensory disabilities of at least 65%, or who have a psychological disability of at least 33%, increases from 75% to 99%. Therefore, they will only pay 1% of the final quota.

An important point is that quota bonuses are applied to the value of voluntarily declared assets and rights, whether within the tax presentation period or outside of it, but without having received a prior requirement from the Administration. In the case of an undeclared inheritance discovered by the Administration, the bonuses would not be applicable.

Transitional situations: Inheritances (deaths) or donations already caused from May 28, 2023, and until November 23, 2023. The following cases may occur:

Inheritances from deaths occurring from May 28, 2023, and until November 23, 2023. If the tax has already been settled, its rectification can be requested and, if applicable, the refund of the amount overpaid due to the application of the new tax benefits. If the tax has not yet been settled, it can be presented applying the new tax benefits.

Donations made from May 28, 2023, and until November 23, 2023. In donations where the tax has been settled, its rectification can be requested and, if applicable, the refund of the amount overpaid due to the application of the new tax benefits. In case of donations that have not yet been settled, they can be liquidated applying the new tax benefits. However, to apply the 99% bonuses, and in the absence of legal provision, they could only apply to donations made in a public document or formalized in a public document within a maximum period of one month from the cause. This may be relevant, especially in the case of money donations: if the donation was made more than a month ago and had not been declared, it would not be possible to apply the 99% quota bonuses, but the reductions in taxable base would still apply.