Andalusia slashes inheritance tax for relatives in third degree (Group III: brothers, nephews, uncles, etc)

Raymundo LarraĆ­n Nesbitt, October, 11. 2021

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By Raymundo Larraín Nesbitt
Lawyer - Abogado
11th of October 2021

Following on the trend to lower taxes, Andalusia’s regional government announced last week that it would be drastically reducing IHT for relatives in third degree:

Group III: Relatives in second and third degree: in-laws, brothers/sisters (siblings), nephews/nieces, aunts, and uncles.

As we’ve reported several times, relatives in first and second degree do not pay inheritance tax for estates under 1mn euros. Over and above 1mn eruos, they have a tax allowance of 99% in Andalusia. In other words, almost no one pays inheritance tax within these two family groups:

Group I: Natural and adopted children under 21.
Group II: Natural and adopted children over 21, spouse, registered civil partnerships, parents, adoptive parents, grandparents and great-grandparents.

The new change we report on today translates into these allowances being broadened to include (for the first time) the third group of relatives. For family members in Group III, the top marginal rate in IHT is reduced from 70% down to only 45% (in the most extreme cases, when millions are inherited).

Despite drastically reducing inheritance tax in Andalusia, the regional government has earned an extra 600mn euros in taxes. This is known as the Laffer Curve which we’ve explained in detail in previous articles. Basically, it means that when you lower taxes, paradoxically, the tax revenue increases (at least until a marginal point is reached) because more taxpayers comply. As Andalusia came from a point of high taxes, the Laffer Curve effect is quite noticeable in the public coffers. This positive effect (increase of taxe revenue despite lowering tax rates) is also taking place in the autonomous region of Madrid, which also keeps lowering its taxes relentlessly.

This new change for family members in a third degree will come into effect as from January 2022.

Following this welcome tax change, Andalusia will have as from 2022 the most tax-efficient inheritance tax laws out of all the autonomous communities in Spain. This, once more, proves the unwavering commitment of our regional government to lower taxes where possible and reduce admin red tape.

These are the sort of tax measures that I keep pointing out help to attract foreign investments and foster a dynamic economy that creates jobs. Kudos to our politicians.


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