What is changing with the new bill on Inheritance and Gift Tax bonuses
The Conservative party, led by the newly elected regional president, has pledged to subsidize the Inheritance and Gift Tax in the Valencian Community, and the current bill clarifies two key points. It will apply retroactively from the election date, May 28, and the bonus will apply to both inheritances and donations. This is a shift from early campaigning discussions, which often framed the topic as the “Death Tax.”
What exactly does the bill change?
To understand the new framework, it helps to know that the tax base starts with the value of donated or inherited assets. From this base, kinship-based deductions reduce the amount owed, and the tax rate then determines the final fee. The bill introduces and expands bonuses that reduce the payable tax. First, kinship discounts are strengthened by removing penalties tied to prior assets and by including both spousal and grandparent-grandchild donations.
Second, the standout feature is a 99% bonus on the fee for eligible recipients, covering descendants, spouses, and, to a certain extent, individuals with disabilities.
Will there be a flood of donations or inheritances under the new rules?
A crucial distinction lies between donations and inheritances. Although the autonomous law treats them similarly, their impact on other taxes differs. Inheritances bring greater relief because beneficiaries often avoid selling assets to cover the tax or having to forfeit the inheritance due to affordability. Real estate has commonly been the core asset involved, and the revised rules reinforce this trend.
Donors should still proceed with caution. Donating may trigger personal income tax implications for the donor, depending on what is donated and how it is valued. The financial cost of gifts has generated questions from the public seeking clarity on potential tax burdens.
Does the donor pay taxes upfront?
In the case of cash donations, there are no tax costs for the donor if the donation is made via a public title deed. Real estate donations are different. For example, if a donor acquired property years ago for a small amount and now donates it when its value has risen, the capital gain is typically taxed if the donor were to sell. Donating the property instead can trigger similar tax consequences, as the tax authorities view a donation as a change of ownership, which is taxable under personal income tax rules. This nuance is often surprising, because inheritance transfers do not generate the same capital gains treatment for the deceased.
In other words, a donor who gives real estate may still face tax obligations as if they had sold the asset, whereas an inheritance tends to avoid that specific tax trigger. This distinction matters for families planning future transfers and the financial impact on heirs.
What about family businesses?
Family enterprises bring their own set of complexities. Donations or inheritances involving such businesses involve not only tax considerations but also strategic choices about succession and long-term company survival. There are exemptions at both the regional and state levels—each with specific requirements—that aim to preserve family ownership across generations. The bill tightens compliance with these criteria, which often include preserving shares for a required period and meeting other conditions.
To avoid triggering personal income tax on donations, it remains essential to meet the existing requirements. When shares in a family business are donated, the recipient typically inherits the donor’s adjusted cost basis, which can lead to different tax outcomes if the business is later sold. Structured ownership, including holding companies and strategic share arrangements, can significantly influence tax results in both donation and inheritance scenarios.
The options in family business transfers are broad and highly case-specific. Each situation often requires tailored guidance, taking into account the type of company, ownership structure, and the people involved. Handling matters like usufruct and voting rights in share transfers adds layers of complexity that should be reviewed with professional advice.