After abolishing inheritance tax for close relatives two years ago, the Balearic government is now extending the reform to include gift tax. The Balearic Islands' general budget law for 2025, published on 24 July 2025, provides for improvements to inheritance tax as well as important changes to gift tax. The tax burden for gifts within close family circles will thus be reduced to virtually zero. However, additional tax aspects must be considered for real estate transactions.

The Balearic Islands had already completely abolished inheritance tax for direct relatives (parents, children, grandchildren, spouses) in July 2023. At the same time, an exemption of up to 50% was introduced for inheritances in favour of more distant relatives (siblings, aunts, uncles, and nephews). These reliefs apply both to inheritances on passing and to so-called lifetime gifts (inheritance contracts), which can be notarized by residents and non-residents (e.g., from Germany and Switzerland).

These tax cuts are detailed as follows: For second- and third-degree family members (e.g., siblings, uncles, nephews), the gift tax will be reduced by 60%. The current inheritance tax rebate of 50% for this group will also be increased to 60%. For distant relatives (e.g., parents-in-law, daughters-in-law, sons-in-law), the current rebate of 25% will be expanded to 35%, and a new gift tax deduction of 35% will be introduced.

While financial transactions between immediate family members will be tax-free under the reform, further tax aspects must be considered for real estate donations:

1. Property value: Deductions can only be claimed if the transaction value does not exceed the market reference value of the property by more than 20 percent.

2. Capital gainstax: In the case of a gift, income tax must be paid on the difference between the original purchase price of the property and its value at the time of the gift. For non-residents, this income tax (profit tax) is 19% of the net difference in value.

3. Advantage for inheritances: In the case of an inheritance or an inheritance contract (so-called pacto sucesorio), however, this capital gains tax is not payable.

These rules apply to all persons who are tax residents in the EU, as long as the inheritance or donation concerns a property or other assets in Ibiza.

• A non-resident inherits their shared home in Ibiza after his wife's death in 2025. No inheritance tax is payable provided the property is correctly valued within the market reference value and the Balearic rules are explicitly applied in the tax return.

• A German citizen living in Ibiza wishes to gift his finca to his adult daughter living in Germany. If properly structured, the transfer is tax-free, even though the daughter does not live in the Balearic Islands.

Conclusion: With the great freedom in inheritance contracts under Balearic civil law and the favourable tax regulations, which have also applied to gift tax since July 2025, the Balearic Islands have developed into a tax haven for inheritances and gifts in favour of direct and close relatives.

Residents and non-residents alike have tremendous opportunities for estate planning or making gifts without significant tax burdens. However, individual advice is crucial in every case, as in addition to inheritance and gift taxes, other taxes such as plusvalia, corporate income tax, wealth tax, or taxation in the country of origin can play a significant role. Tax exemption is not automatic, but with the right planning, you can save a lot of money.