Pacto Sucesorio Balear: Transferring Property to Your Children Tax-Free During Your Lifetime

Anyone who owns a property in Mallorca and wants to pass it on to their children one day tends to think first of inheritance or a gift — and in doing so often overlooks the most effective instrument in Balearic law: the Pacto Sucesorio Balear. This succession agreement allows assets to be transferred to the next generation during one's lifetime in a binding manner and, as a rule, free of tax, without having to accept the tax disadvantages of an ordinary gift. The legal basis is Ley 8/2022 of 11 November 2022, which has been in force since 17 January 2023 and has fundamentally modernised Balearic succession contract law. In this guide you will learn exactly how the Pacto Sucesorio works, what two main variants exist in Mallorca, who can use it — including non-residents and foreign nationals —, what taxes apply, and where the most common pitfalls lie.

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What is the Pacto Sucesorio Balear — and why is it not an ordinary gift?

The Pacto Sucesorio is a contract by which a person arranges their succession in a binding manner during their lifetime: they designate one or more beneficiaries — as heirs or as recipients of individual assets — and those beneficiaries expressly accept the disposition. The crucial point: this contract cannot be unilaterally revoked or amended by a subsequent will. A change is only possible if both parties agree by mutual consent.

In tax terms, this is the crux of the advantage: a conventional gift (donación) is taxed as a gift under Spanish law, giving rise to a separate tax liability, and may trigger income tax on the capital gain realised by the donor. The Pacto Sucesorio, by contrast, is treated as an inheritance on death — it falls under inheritance tax (ISD), not gift tax, and any increase in the property's value is deemed not to have been realised for tax purposes.

Please note: The essential difference from a conventional gift is that, under the Pacto Sucesorio, no income tax is payable by the transferor on capital gains — whereas with an ordinary gift, any increase in value since the original purchase may be taxed as a gain.

The arrangement is not a new construct, but was significantly modernised by Ley 8/2022. Before this reform, the Pacto Sucesorio was linked to the so-called vecindad civil mallorquina — Balearic civil law could therefore only be used by persons possessing this status. That requirement was abolished on 17 January 2023.

The two main variants in Mallorca and Menorca

Ley 8/2022 distinguishes the rules by island. For Mallorca and Menorca two forms are particularly relevant:

Please note: For Ibiza and Formentera different rules apply – there the so-called Finiquito de legítima is the equivalent instrument. This guide focuses on Mallorca and Menorca.

Both variants are only valid in notarised form (Escritura Pública). The Ley 8/2022 additionally stipulates that the notarial deed must record the date and time of execution. Furthermore, the conclusion is reported to the Registro General de Actos de Última Voluntad (Central Wills Register).

Who can use the Pacto Sucesorio?

Prior to 2023, use was restricted to persons with vecindad civil balear status. The Ley 8/2022 has considerably broadened the scope. Today, the key factor is primarily the EU Succession Regulation No. 650/2012: This determines the applicable succession law based on the habitual residence (domicile) at the time of death – or based on the law of nationality chosen by the testator.

Please note: The question of the applicable succession statute is complex. The EU Succession Regulation allows for an express choice of the law of one's nationality – which in individual cases may either open up or preclude access to the Balearic Pacto Sucesorio. Before entering into any such agreement, you should always consult a lawyer specialising in international succession law.

Under the Balearic Pacto Sucesorio, Balearic law generally permits direct descendants to be designated as beneficiaries – that is, from parents to children. Spouses, grandchildren or other relatives cannot directly be named as beneficiaries under this specific arrangement; for these groups, inheritance or gift are the more appropriate instruments.

Tax treatment: what falls due and when?

Inheritance tax (ISD) in the Balearic Islands

Since 18 July 2023, the Balearic Islands have applied a 100% bonification on inheritance tax for Groups I and II – with no upper value limit. This bonification was confirmed in subsequent years and remains unchanged for 2026.

The Pacto Sucesorio is treated as an inheritance for tax purposes, and therefore benefits from the same bonifications. This means that transfers between parents and children generally incur € 0 inheritance tax – regardless of the property value.

Note on the taxable base: The tax is calculated on the basis of the Valor de Referencia (cadastral reference value) or the actual market value, whichever is higher. You can look up the current Valor de Referencia for your property on the Catastro website.

No income tax gain for the transferor

A key advantage over a conventional gift: under the Pacto Sucesorio, the transferor is not required to pay any income tax on the capital gain realised pay. With a standard gift, the increase in value since purchase is treated under tax law as a realised gain of the donor – depending on the holding period and appreciation in value, this can result in considerable IRPF costs.

Plusvalía Municipal (IIVTNU)

The municipal land value increment tax (plusvalía municipal) may apply depending on the municipality. As with the tax treatment, the specific structure of the Pacto Sucesorio is also decisive here. Have the situation clarified in advance for your municipality.

The German perspective: What happens in Germany?

For German citizens residing in Germany who wish to transfer a Mallorca property by means of a Pacto Sucesorio, there is one important peculiarity: There is no double taxation agreement between Spain and Germany covering inheritance and gift taxes.

This theoretically means a double tax liability. In practice, however, there are two mitigating factors:

1. Credit principle: The tax paid in Spain can be credited against German inheritance tax. Since on the Balearic Islands currently €0 applies for Group I and II, there is generally nothing to credit in German parent-to-child transfers.

2. German tax-free allowances: In Germany, a tax-free allowance of €400,000 per parent per child applies to inheritance and gift tax, renewing every 10 years. If the value of the Mallorca property per transferring parent falls below this amount, no tax is due in Germany either.

Note: This overview is a guide, not legal advice. Whether and how the Pacto Sucesorio is classified in Germany as a gift or inheritance depends on the specifics of the individual case. Added to this is the question of the tax residence of all parties involved. Have this reviewed by a German-Spanish tax adviser.

Step by step: How a Pacto Sucesorio works

1. Preparation and advice: Tax and legal review by a lawyer and/or tax adviser specialising in Balearic inheritance law – in particular regarding the question of the applicable succession statute (relevant for non-residents).
2. Property valuation: Determination of the current Valor de Referencia and, where applicable, a market valuation report as the basis for the tax calculation.
3. Drafting the escritura: The notary prepares the draft contract containing full details of the parties, the asset being transferred, the chosen variant (Definición or Donación Universal), and the date on which it takes effect.
4. Notarial certification: Both parties (transferor and beneficiary) sign the contract before a Spanish notary. Date and time are recorded in the minutes.
5. Notification to the Wills Register: The notary automatically notifies the conclusion of the agreement to the Registro General de Actos de Última Voluntad.
6. Land Registry entry: Where the property is transferred with immediate effect, it is registered at the Registro de la Propiedad.
7. Tax return: Submission of the ISD declaration within one month to the Balearic tax authority (ATIB) where the transfer takes immediate effect; where effect is deferred until the death of the transferor, the normal inheritance tax deadlines apply (6 months, extendable on application).

Please note: The one-month deadline for filing the tax return in respect of Pactos with immediate effect is a statutory deadline. Missed deadlines result in surcharges and interest.

Pacto Sucesorio vs. classic gift vs. will: a comparison

Please note: Since July 2023, the 100% bonification on the Balearic Islands has also applied to gifts (Group I/II). Nevertheless, the key advantage of the Pacto Sucesorio over a straightforward gift remains the elimination of the IRPF liability for the transferring party.

Irrevocability: What does this mean in practice?

Irrevocability is the flip side of the tax attractiveness. Anyone who signs a Pacto Sucesorio is, in principle, irrevocably relinquishing the relevant assets. For Mallorca property owners, this means specifically:

• No subsequent will can unilaterally override the Pacto Sucesorio.
• Amendments are only possible with the consent of both parties in a new escritura.
• Disputes with other potential heirs (e.g. additional children) are possible if the transaction is regarded as an infringement of forced heirship rights.
• In the case of a Donación Universal, the transferor relinquishes their entire current estate — caution is advised if there are outstanding liabilities or planned investments.

Irrevocability is not necessarily a disadvantage: many families value precisely the planning certainty and the clear-cut arrangement that prevents disputes among siblings after the testator's death.

The most common mistakes with the Pacto Sucesorio

1. Incorrect succession statute assumed Anyone who lives in Germany and owns only a holiday property on Mallorca generally does not have Balearic succession status. Anyone who nevertheless enters into a Pacto Sucesorio risks it not being recognised in Germany or being treated differently for tax purposes.

2. The IRPF question overlooked With a standard gift, the donor may incur a significant income tax liability on the realised increase in value. Anyone who views the Pacto Sucesorio as a mere gift overlooks its central tax advantage.

3. Deadline for the tax return missed Where the Pacto Sucesorio takes immediate effect, the deadline for the ISD declaration is one month. This deadline is regularly underestimated.

4. Valor de Referencia not checked The cadastral reference value is the taxable assessment base. If the actual purchase price or market value exceeds it, the higher figure applies. Surprises can be avoided by carrying out a Catastro enquiry at an early stage.

5. Equal treatment of siblings not considered A Donación Universal in favour of one child may affect the forced heirship rights of other children. Forward-looking family planning — if necessary with separate Pactos for all children — prevents conflicts later on.

6. German and Spanish law confused A Pacto Sucesorio is not a German Erbvertrag, even though it operates in a similar way. Its legal effects, formal requirements, and tax consequences must be assessed independently under Spanish and Balearic law.

Special considerations for non-residents

For Germans who are resident in the Balearic Islands (i.e. those whose habitual residence is there), the Pacto Sucesorio is generally straightforward to access and advantageous from a tax perspective.

For Germans with residence in Germany and a holiday property in Mallorca the situation is more complex:

• The applicable succession statute is determined by habitual residence – in this case Germany. Balearic inheritance law therefore does not apply automatically.
• There is, however, the option under the EU Succession Regulation to choose the law of one's home country – i.e. German law. In doing so, however, access to the Balearic Pacto Sucesorio is forfeited.
• In certain circumstances – for example where the centre of life has genuinely shifted to the Balearic Islands – Balearic law may become applicable.

Please note: The tax treatment of non-residents with regard to gift tax in the Balearic Islands was adjusted for EU citizens following a ruling by the ECJ. Nevertheless, tax liability in Germany remains unaffected by this, and without a double taxation agreement a parallel calculation of both tax liabilities is required.

Anyone planning their property strategy in Mallorca on a long-term basis should also familiarise themselves with related topics such as the property purchase process, the ancillary purchase costs and the taxes on sale.

What comes next? Land Registry, taxes, ongoing obligations

Following the conclusion of a Pacto Sucesorio with immediate transfer effect, the new owner faces the following immediate steps:

Find out more about the ongoing IBI tax and the owners' community in our separate guides.

Checklist: Pacto Sucesorio Balear

• Succession statute clarified – does Balearic law apply to all parties involved?
• Specialist lawyer (Balearic inheritance law) and tax adviser engaged
• German-Spanish tax adviser consulted for cross-border cases where applicable
• Valor de Referencia of the property checked with the Catastro
• Variant chosen: Definición or Donación Universal?
• Point in time of effect defined: immediate or upon death?
• Notary appointment arranged (Spanish notary mandatory)
• Both parties equipped with valid NIE numbers
• Tax return deadline (1 month for immediate effect) noted in the calendar
• Land registry transfer initiated following notarisation
• IBI re-registration with the local authority noted as a reminder
• Statutory forced-share rights of other children discussed with a lawyer

Conclusion

The Pacto Sucesorio Balear is one of the most attractive instruments in Spanish estate planning – and is still used far too rarely by German property owners in Mallorca. The combination of €0 inheritance tax for Groups I and II, no IRPF liability on capital gains for the transferor, and binding planning certainty makes it the first choice for parents who wish to pass on their Mallorca property to their children in an orderly fashion during their lifetime.

The crucial caveat: the instrument only works smoothly when Balearic succession law is actually applicable – and that depends heavily on whether the transferor has their habitual residence in the Balearic Islands. For holiday-home owners whose centre of life is in Germany, the situation is more complex and requires careful examination of the individual case, taking the EU Succession Regulation into account.

Seek advice early – ideally before you make a decision between a gift, a will, and a Pacto Sucesorio.

Official sources

• Ley 8/2022, de 11 de noviembre, de sucesión voluntaria paccionada o contractual de las Illes Balears – BOE: https://www.boe.es/diario_boe/txt.php?id=BOE-A-2022-20278
• EU Succession Regulation No. 650/2012 – EUR-Lex: https://eur-lex.europa.eu/legal-content/DE/TXT/?uri=CELEX:32012R0650
• ATIB – Agència Tributària de les Illes Balears (ISD forms, deadlines, bonifications): https://www.atib.es
• Catastro – query the Valor de Referencia: https://www.sedecatastro.gob.es
• Registro General de Actos de Última Voluntad (RGAUV) – Ministerio de Justicia: https://www.mjusticia.gob.es