Inheriting or gifting a villa in Mallorca: Balearic inheritance tax for non-residents

It is the question almost no buyer asks on signing day and almost every buyer asks a few years later: what happens to the house when I'm gone? In the Balearics the answer is, for most families, better than they expect. But it has small print, and small print is read beforehand, not afterwards. Everything below is indicative at the time of writing; tax rules change and your case should be reviewed by an adviser.

Who pays inheritance tax on a house in Mallorca

• If the heir is resident in Spain: they are taxed here on everything they inherit, wherever it is.
• If the heir is not resident in Spain: they are taxed in Spain only on assets located in Spain. A villa in Alcúdia is therefore always taxed here, whatever the nationality or residence of the person inheriting it.
• And in addition it may be taxed in the heir's country of residence. Treaties and domestic rules generally prevent double taxation, but not always automatically.

The Balearic relief for immediate family

Since July 2023 the Balearic Islands apply a virtually full relief on the tax due for inheritance-tax groups I and II: children, grandchildren, parents, grandparents, spouses and registered stable partners. In practice, inheriting a villa in Mallorca from a parent or a spouse pays no inheritance tax, whatever its value. The exact scope of the relief currently in force is worth confirming with a tax adviser.

• Siblings, nieces, nephews, aunts and uncles (group III): partial relief, greater if related by blood than if related by marriage.
• All other heirs (group IV): no relief. An unmarried partner not registered as a stable couple falls here, and it is one of the most expensive mistakes we see.
• The condition people forget: the declared value of the property may not be lower than the Land Registry's reference value. Declaring below it forfeits the entire relief.

Non-residents can benefit too

For years, an heir living in Germany or the UK was taxed under the far less favourable national rules while their neighbour living in Palma enjoyed the Balearic ones. The Court of Justice of the European Union ended that discrimination in 2014, and the Spanish Supreme Court extended it in 2018 to residents outside the EU. Today, a non-resident heir can apply the Balearic relief when the property is in the Balearics. The return is filed with the national tax agency, but under Balearic rules.

Gifting during your lifetime: the same relief, with caveats

• Relief: gifts to children, parents and spouses also enjoy that virtually full relief in the Balearics, provided they are formalised in a notarial deed.
• The hidden cost: whoever gifts a house that has risen in value realises a capital gain in their income tax on the difference between what they paid and what it is worth today. On a villa bought fifteen years ago, that tax can exceed any inheritance tax. On inheritance, by contrast, that gain is not taxed: the so-called "deceased's capital gain" is exempt.
• Practical conclusion: gifting during your lifetime is rarely cheaper than inheriting. It is done for other reasons —organising the estate, helping a child now— not to save tax.

The tax that isn't inheritance tax: the municipal capital gains tax

When you inherit or receive an urban property as a gift, the town hall charges the Tax on the Increase in Value of Urban Land (the plusvalía municipal). It is separate from inheritance tax and is paid by the person receiving the house.

• It is only payable if the land has genuinely risen in value since the previous acquisition; with no increase, there is no tax.
• Many town halls grant relief on the inheritance of a main residence by immediate family. Check Alcúdia's by-law for your case.
• The deadline to file on inheritance is six months, extendable.

Deadlines that don't forgive

• Six months from the death to file the inheritance tax return. Six more can be requested, but the request must be made within the first five.
• Filing late brings surcharges, and in international estates —apostilled death certificates, sworn translations, last-will certificates from two countries— six months fly by.
• Until the tax is settled and the property registered at the Land Registry, the house cannot be sold or mortgaged.

The will: the decision that is in your hands

The EU Succession Regulation provides that the entire estate is governed by the law of the country where the deceased had their habitual residence, unless the will chose the law of their nationality. For a German who lives half the year in Alcúdia, that can mean the estate is divided under Balearic law —with its forced-heirship rules— rather than German law. Two pieces of advice we always give:

• Expressly choose in your will the law you want applied. It is one clause, and it avoids years of uncertainty.
• Make a Spanish will limited to your Spanish assets, coordinated with the one in your home country. A notary in Alcúdia executes it in a morning and saves your heirs months of cross-border paperwork.

And while you are alive: wealth tax

The Balearics apply Wealth Tax with a generous tax-free allowance per person; confirm the current amount with your tax adviser. A non-resident is taxed only on assets in Spain, and a villa owned jointly by two spouses splits its value across two allowances. It is another reason to think about ownership structure before signing; we cover it in the legal and tax checklist for buying.

Conclusion

Inheriting a villa in Mallorca from a parent or spouse is today, in the Balearics, practically free of inheritance tax. What can be expensive is everything else: an unregistered partner, a declared value below the reference value, a missed deadline or a will that does not say which law applies. All of that is fixed while you are alive, with an adviser and a notary, in far less time than it takes to undo later.