Eliminating the inheritance tax would increase revenue by 10 billion euros.
Modifying the design of the inheritance and gift tax to harmonize it, eliminating the current tax breaks, could generate an increase in revenue of more than 10 billion euros, according to estimates by the Bank of Spain. The Ministry of Finance has not proposed these tax changes, at least for now. Meanwhile, the Community of Madrid extended tax breaks to siblings, uncles, and nephews this week.
The theoretical exercise was proposed in an article by Isabel Micó and Roberto Ramos, members of the Spanish economic analysis department of the financial supervisor. The simulation takes as a reference the inheritance and gift tax regulations in force in 2022, and applies several reforms to this scenario: eliminating the tax breaks for autonomous communities such as Madrid and Andalusia, applying a unified rate at the state level, and unifying kinship reductions. The conclusion of the proposal is that revenue from the aforementioned inheritance tax would increase to 0.74% of GDP.
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The article published by the Bank of Spain points out that in 2023, public revenue associated with inheritances and donations reached 0.23% of GDP in Spain. Therefore, with the changes proposed by the two experts cited, revenue collection could increase by 0.5 percentage points of GDP, to the aforementioned 0.74%.
This quantification, the study warns, assumes that the changes introduced to the tax, if ever decided, would not cause substantial changes in the behavior of economic agents.
The inheritance and gift tax has been vested in the autonomous communities since 1996, and they have regulatory authority over it. In particular, the territories have the power to modify the tax parameters established in state-level regulations. Therefore, some have decided to regulate the tax scale, reductions for kinship, or discounts on the tax rate, resulting in a decrease in revenue.
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The 2023 snapshot of inheritance and gift tax revealed a picture in which the highest revenues corresponded to Catalonia, the Balearic Islands, Asturias, and La Rioja. The four autonomous regions collected more than 0.3% of GDP from the tax. At the other end of the spectrum, Extremadura, Andalusia, and Murcia achieved the lowest revenue levels of the common regime regions, below 0.15% of GDP.
Madrid, Andalusia, Cantabria, Castile and León, Extremadura, and Murcia currently have 99% tax breaks in their regional legislation for successors in group II, i.e., descendants and adopted children over 21, spouses, and ascendants. In Cantabria, the rate rises to 100%.
Spanish inheritance tax revenue exceeds the EU average, which is 0.15% of GDP. The countries where the tax generates the most revenue are France and Belgium (0.8% and 0.6% of GDP, respectively), while Germany and Denmark are at a similar level to Spain. Portugal, Austria, and Sweden do not have this tax in their tax system.
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