Inheritance & Gift of Property in the Balearics: Taxes 2026

Anyone inheriting or transferring during their lifetime a finca, an apartment in Palma, or a villa in Son Vida faces a tax that differs fundamentally from its German counterpart: the Impuesto de Sucesiones y Donaciones (ISD), the Spanish inheritance and gift tax. The crucial point is that it is not the Spanish central government that determines the rate, but rather the relevant autonomous region. And the Balearic Islands carried out a reform between 2023 and 2025 that effectively makes inheritances and gifts of property within the immediate family tax-free. This guide explains who pays how much in 2026, why the pacto sucesorio is arguably the most important planning tool for property owners, and which deadlines you must on no account miss.

Personal advice on your property succession in Mallorca:

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Impuesto de Sucesiones y Donaciones (ISD): regional, not national

Unlike in Germany, there is no nationally uniform inheritance tax rate in Spain. The ISD is indeed a state law (Ley 29/1987), but fiscal sovereignty has been delegated to the Comunidades Autónomas. Each region may set its own allowances (reducciones), tax rates, and above all bonuses against the tax liability (bonificaciones)). This leads to enormous differences: the same inherited property can cost five-figure sums in Asturias and €0 in the Balearic Islands.

Four factors determine the tax burden:

The Spanish inheritance tax recognises four kinship groups. They are the key to the overall tax burden:

Important: An unmarried partnership only falls into Group II if it is registered as a pareja estable in the Balearic register. Without registration, the partner is placed in Group IV — and therefore subject to the full rate. For German couples on Mallorca, this is one of the most costly pitfalls.

The Balearic reform: 100 % bonus for Groups I and II

Since 18 July 2023, the Balearen have granted a bonus of 100 % on the adjusted tax liability (cuota íntegra corregida) on acquisitions upon death as well as on the equivalent pactos sucesorios, provided the heir falls into Group I or II. In plain terms: a child inheriting their parents' villa pays €0 ISD — regardless of value. There is no longer any upper limit.

In 2025, the reform was extended further by the budget law (Ley 6/2025, effective from 25 July 2025) to cover lifetime gifts and the bonus for Group III was also increased. As of 2026, the most favourable set of conditions in history continues to apply to family transfers in the Balearen.

In addition to the bonus, there are prior allowances (reducciones por parentesco), which are deducted from the tax base:

For the deceased's primary residence, Groups I+II are additionally entitled to a reduction of up to 100 % of the value of the vivienda habitual (up to a statutory ceiling) — particularly relevant should the bonus ever fail to apply.

The critical condition for properties: For the 100 % bonus to be recognised, the notarial deed (escritura pública) must state the value of the acquired property, and this value may not exceed the valor de referencia of the Cadastre by more than 20 %. If no valor de referencia exists or cannot be certified by the Dirección General del Catastro, the market value applies as the limit. Anyone who declares too low a value risks a reassessment and loss of the bonus.

Lifetime gift vs. inheritance on death

Until mid-2025, a decisive asymmetry applied: inheritances were subject to a 100 % bonus, whereas ordinary gifts (donaciones) made during one's lifetime were not. These were subject to a progressive rate (7,65 % to 34 %), capped by a regional deduction at an effective burden of around 7 %. Since 25 July 2025 this gap has been closed: ordinary gifts to Groups I and II also benefit from a 100 % deduction from the tax liability (cuota líquida)) — gifting an apartment to a child by notarial deed therefore costs 0 Euro ISD. As with property inheritances, the condition applies here too that the declared value must not exceed the valor de referencia by more than 20 %.

However, a word of caution: ISD is only one of several taxes. In the case of an ordinary gift of a property, the donor triggers capital gains taxation within their own income tax return (IRPF) — the ganancia patrimonial. If the property has increased in value over the years (which is the norm in Mallorca), this latent gain is taxed at the donor's level at between 19% and 28%. This IRPF liability does not disappear due to the ISD exemption.

Rule of thumb: For cash, bank accounts or young assets without significant appreciation an ordinary gift is straightforward. For property with a high latent gain, the pacto sucesorio is the superior route — because it avoids the IRPF trap.

Pacto sucesorio: the Balearic peculiarity

The pacto sucesorio is a feature of Balearic civil law and is only available in a small number of Spanish regions with their own civil law (Balearen, Catalonia, Aragon, Galicia, Navarre, the Basque Country). It is a contractual succession agreement by which you irrevocably transfer assets to the next generation during your lifetime — yet for tax purposes the acquisition is treated as an acquisition on death, not as a gift.

The best-known Mallorcan variant is the definición: a transfer from parents to children, in which the child waives their future statutory share (legitim) is waived. The whole matter has been governed by Ley 8/2022, which removed the previously required balearic vecindad civil — meaning that foreign nationals resident in the Balearics can also enter into a pacto sucesorio under Balearic law.

The tax advantages are considerable:

1. No IRPF for the transferor. Since the pacto sucesorio is treated as an acquisition on death (Art. 33.3.b Ley 35/2006, confirmed at the highest judicial level by STS núm. 407/2016 of 9 February 2016 concerning the apartación gallega), no taxable ganancia patrimonial arises for the donor. The latent gain so often feared in an ordinary gift is not taxed.
2. Favourable ISD rate instead of the gift rate. Rather than the effective gift rate, the inheritance rate of 1 % up to 700.000 € applies for Group I+II (where the patrimonio preexistente is below 400.000 €) — and on top of that the 100 % relief. In practice, the ISD liability remains at 0 €.
3. Step-up in acquisition cost. If the child subsequently sells the property, the (current) value declared in the pacto sucesorio is treated as the acquisition value. The gain accumulated by the parents over decades evaporates for tax purposes.

The 5-year lock-up (Anti-Fraude Act 11/2021): If the child sells the property received via a pacto sucesorio before the donor has died and before 5 years have elapsed since the agreement, it must use the donor's original acquisition value and acquisition date for IRPF purposes. The step-up advantage is then lost. Anyone who abuses the pacto sucesorio as a short-term sales vehicle will come away empty-handed.

The deadline trap: Unlike inheritance (6 months), the period for the ISD self-assessment in a pacto sucesorio is only one month from the date of notarial signing. The devengo is the date of notarisation, not any subsequent date of death. Anyone who overlooks this shortened deadline risks late-payment surcharges — a common and costly trap, particularly with this key planning instrument.

The price of this: the pacto sucesorio is irrevocable. Any subsequent amendment by will is excluded, and under the definición the child permanently waives their compulsory share. This requires careful family planning and legal advice.

Non-residents and the EU right of choice

For a long time, non-residents were discriminated against: they were required to pay ISD at the (more expensive) national rate to the Spanish central tax authority (AEAT), without being permitted to benefit from the favourable regional allowances. The European Court of Justice overturned this with its judgment of 3 September 2014 (Case C-127/12) as a breach of the free movement of capital. Spain responded with Ley 26/2014: from 1 January 2015, heirs and donees resident in the EU or the EEA have been entitled to apply the rules of the region with which a connecting factor exists.

Spanish courts (including STS judgments 2018) and the tax authorities (DGT ruling V0282-20) have since extended this to third countries outside the EU/EEA. Note: the statutory text of Disposición adicional 2ª of Ley 29/1987 has not been amended accordingly, meaning that third-country residents sometimes have to enforce their entitlement in practice through legal proceedings. The Balearic Islands clarified, by means of Ley 11/2023 and definitively with Ley 6/2025, that the allowances are also applicable by non-residents.

For German owners, this means in practice: even if you live in Germany, you can benefit from the Balearic allowances for a Mallorca property — however, the Modelo 650 is then processed through the AEAT rather than the ATIB. In parallel, German inheritance tax may also apply (worldwide income/worldwide assets principle for German residents); the German-Spanish relationship has no specific double taxation agreement for inheritance tax, which is why a credit under § 21 ErbStG must be examined here. This is a specialised field requiring intensive professional advice.

Spanish Will and Plusvalía

A Spanish will is strongly recommended for every Mallorca property owner: it considerably speeds up the settlement process, avoids the costly translations and apostilles required for a German will, and allows — via the EU Succession Regulation (No. 650/2012) — a choice of the law of your home country. We cover this in detail in the linked article — just a brief note here: plan your Spanish will alongside your tax planning, not as an afterthought.

In addition to the ISD, an inherited property is subject to a second charge: the Plusvalía municipal (IIVTNU), the municipal land value increment tax, levied by the respective local authority. It applies only to urban land (terrenos urbanos) and is payable by the beneficiary.

In Palma, the municipal by-law (Ordenanza fiscal) grants a reduction of up to 95 % on the Plusvalía where the inherited property was the primary residence (vivienda habitual)) of the deceased and the heirs are spouses, descendants, or ascendants. Key conditions in Palma:

• The full 95 % reduction is tied to a valor catastral of the property of less than € 100,000. If the cadastral value exceeds this threshold, the relief applies only in part or not at all — for premium properties the cadastral value frequently surpasses this figure.
• The relief must be actively claimed within the applicable deadline — it is not granted automatically.
• The property must be retained 5 years (exception: death of the beneficiary within that period).
• The relief also applies to transfers by way of pacto sucesorio / definición.
• If no real increase in the value of the land has occurred, no Plusvalía is payable (subject to proof).

Each municipality has its own Ordenanza — different thresholds and rates apply in Andratx, Calvià, and Pollença. Before any transfer, it is worth consulting the local by-law of the municipality where the property is situated.

Deadlines: 6 months for inheritance, only 1 month for pacto sucesorio

In the case of an inheritance, the clock starts from the date of death. For a pacto sucesorio by contrast from the notarial deed — and a significantly shorter deadline applies there. The key deadlines:

The most important practical note: the 100% bonus does not exempt you from the obligation to file the Modelo 650. Even where the tax liability is €0, a declaration must be submitted on time — missed formalities can trigger penalties. Furthermore, without a filed and settled Modelo 650, the property cannot be transferred in the Land Registry and can therefore neither be sold nor mortgaged. And: anyone who chooses the pacto sucesorio as their primary planning tool must not confuse the 1-month deadline with the 6-month inheritance deadline — otherwise late surcharges may arise even where no tax is due.

Most common mistakes

• Modelo 650 not filed because "it's €0 anyway". The bonus is conditional on a timely declaration. Failure to do so = a formal penalty and a blocked Land Registry entry.
• Confusing the pacto sucesorio deadline with the inheritance deadline. With the pacto sucesorio the deadline is only 1 month from notarisation, not 6 months — a common and costly trap.
• Declaring the property value too low. If the declared value falls below the valor de referencia, a reassessment is likely; if it exceeds it by more than 20 %, the bonus is at risk.
• Using an ordinary gift instead of a pacto sucesorio for properties with accrued gains. The ISD may be 0 €, but the IRPF capital gains tax for the donor is overlooked — often a five-figure surprise.
• Unmarried partner without a registry entry. Without a pareja estable registration, the partner falls into Group IV — full rate instead of 0 €.
• Ignoring the 5-year lock-in period of the pacto sucesorio. An early sale destroys the step-up advantage.
• Plusvalía reduction not applied for, or the value threshold overlooked. In Palma up to 95 % — but only where the cadastral value is below 100.000 € and only if applied for actively and within the deadline.
• Forgetting German inheritance tax. Where the deceased was resident in Germany, German ErbSt may apply in parallel; without an ErbSt double-taxation agreement, the credit mechanism must be examined carefully.
• Extension application submitted too late. The prórroga is only possible within the first 5 months — after that the deadline expires without exception.

Pre-transfer checklist

• Kinship group and bonus entitlement clarified (Group I/II = 100 %?)
• Unmarried partner registered as pareja estable?
• Latent capital gain on the property reviewed → gift or pacto sucesorio?
• Valor de referencia from the cadastre obtained, declaration value established
• Spanish will in place / choice of law made under the EU Succession Regulation?
• Jurisdiction clarified (ATIB or AEAT for non-residents)?
• German inheritance tax implications coordinated with a German adviser
• Plusvalía reduction at the property's location researched (cadastral value threshold!) and application planned
• Deadlines to note: 6 months (inheritance), 1 month (pacto sucesorio & gift), 5 months (extension application)

What comes next

Once succession is arranged, further matters follow. Anyone who does not intend to use an inherited property themselves should consider selling or letting — both carry their own tax implications (IRPF, IBI, and where applicable Modelo 210 for non-residents). Those relocating to the island should look into registering with the relevant authorities and obtaining a NIE number, which you will need for any notarial transfer in any case. For the purchase of a further property, it is worth reviewing the buying costs on Mallorca and our current market report.

Conclusion

The Balearic Islands are, in 2026, the most tax-efficient region in Spain for transferring family wealth. Children, spouses and parents (Group I+II) can inherit and receive gifts effectively tax-free — the 100% bonus on the tax liability has applied since 2023 for inheritances, and since July 2025 also for gifts, with no upper value limit. The key instrument for property owners with significant accrued gains is the pacto sucesorio: it transfers assets during the donor's lifetime, avoids the donor's IRPF liability, and provides a step-up in acquisition costs. The drawbacks — irrevocability, a 5-year lock-up period, and the short 1-month deadline — demand careful planning. Those who observe the deadlines, declare the property value correctly, apply for the Plusvalía bonus, and factor in the German side of things can pass on their Mallorca assets to the next generation with minimal tax exposure.

Official sources

• Agència Tributària de les Illes Balears (ATIB) — Impuesto sobre Sucesiones, bonuses and reductions
• ATIB — Modelo 650 (Adquisiciones Mortis Causa), instructions and deadlines
• Agencia Tributaria (AEAT) — Modelo 650 Non-Residents, deadlines and extension
• Govern de les Illes Balears — Taxation of living inheritances and pactos sucesorios (PDF)
• Ajuntament de Palma — Plusvalía (IIVTNU): information, calculation and bonuses

Note: This guide is intended for general information purposes only and does not replace professional tax or legal advice in individual cases. Tax law is YMYL-sensitive — amounts, deadlines, bonuses and responsibilities may change and depend on your specific circumstances (residence, family relationship, asset value, German tax implications). Information current as of 2026. Before taking any step, have your specific inheritance or gift reviewed by an Abogado specialising in Balearic succession law and a tax adviser (asesor fiscal) — a personal enquiry is the quickest route to the right expert.