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Tax Transformation in the Valencian Community: reduction of inheritance and gift tax.

Today, November 23, 2023, the new Law 6/2023 has been published and therefore enters into force, with the modifications that many taxpayers have been waiting for.

The Valencian Community takes a firm step towards competitiveness with the publication in the DOGV on 23 November 2023 of Law 6/2023, of 22 November, which amends Law 13/1997, of 23 December, which regulates the regional tranche of Personal Income Tax and other assigned taxes, with regard to the Inheritance and Gift Tax.

The complete text can be consulted on the page of the Official Gazette of the Valencian Community (DOGV) through this link.

This regulation represents a significant change in the autonomous region’s inheritance and gift tax bracket, since 99% rebate on inheritance and gift taxesThe taxable income is taxable in the case of donations in favor of the spouse, parents, adoptive parents, children or adopted children, grandchildren and grandparents of the donor, as well as in the case of mortis causa acquisitions by descendants, adopted children, spouses, ascendants and adoptive parents of the deceased. This allowance will be applicable when the donor (inheritor) or donee is a resident of our community, and when the donated real estate is located in the community.

This Law aims to mitigate the tax burden of Valencian taxpayers, which is one of the highest in Spain, thus adding our region to the autonomous communities that had already taken this legislative step previously. Among them, Madrid and Andalusia stand out in particular, which quickly appreciated the beneficial effect of easing the tax burden on taxpayers, as they became attractive regions for both taxpayers and investors, mainly in real estate. We are confident that the measure will have the same consequences for our community.

It is important to note that this measure was prompted by the change of government that took place in the Valencian Parliament on May 28, 2023. The new government began its term of office with a very determined plan of action, so much so that it has not only managed to approve and publish these regulations with astonishing speed, but has also added a bonus: this measure is retroactiveThe tax will therefore have an effect on all transactions subject to ISyD whose causal event took place as of May 28, 2023.

Of course, not everything is rosy.

Although we welcome the modernization of tax policies, it should be noted thatno measures are introduced in the wealth tax, which is one of the highest in Spain. A tax policy aimed at reducing the tax burden cannot turn a blind eye to this tax. In fact, the Wealth Tax in the Valencian Community continues to be one of the highest in Spain. So tax planning remains crucial, and taxpayers should be aware of the implications of this regulatory change on their financial strategies.

Conclusion:

LAW 6/2023 marks a milestone in the tax history of the Valencian Community. This bold decision places our region in line with other autonomous regions with lower tax burdens, which have seen a significant increase in investment and attraction of taxpayers.

Despite this good news, caution in tax planning for wealth-related transactions remains necessary, especially with the lingering reality of the Wealth Tax. Advance tax planning remains the key to maximizing the benefits of this new era in our community.

Written by:

Miriam Porcar

lawyer and economist

álvaro porcar abogados