The Canary Islands have their own inheritance tax regulations as a result of the Spanish State ceding the tax revenue of inheritance and gift tax to Comunidades Autónomas, along with some regulatory autonomy to adapt tax to the particular circumstances of the respective Comunidad Autónoma.

This means that most Comunidades Autónomas have ruled new (and huge) benefits compared to those established by the Spanish State.

While the tax scheme and regime is the same in all parts of Spain, the Comunidades Autónomas took advantage of the given power to fix higher thresholds, or different rates or direct reductions on the amount to be paid (and sometimes all of these) to benefit close relatives. There are also benefits that help promote local business, farming, etc. as well as in the acquisition of the Comunidad Autónomas’ cultural assets.

However, the Comunidades Autónomas change their regulations quite frequently so it is necessary to check the regulation in force at the time the tax is due.

In the Canary Islands the following reductions are applicable:

Reductions for the acquisition of an individual enterprise or a professional business

1. For gifts made to a spouse, ascendant or descendant of an individual enterprise or a professional business developed by the donor, a reduction of 95% of the value of the gift can be applied.

2. The following must be complied with to apply the reduction:
a) The gift must be formalized in a public deed.
b) The donor is 65 years of age or over, or has a permanent or severe disability.
c) The donor has run the business personally on a regular basis.
d) The income derived from the gifted enterprise or business are at least 50% of all the income, the capital and economic activity of the donor.
e) At the time of the gift the donor ceases to be active in the business or enterprise and receives no more income from the same.

3. The recipient must retain ownership for at least 5 years from the date of the public deed formalizing the gift, unless they die within this period.

4. Recipients without the specific family relationship to the donor detailed above can apply a reduction of 50% of the value of the gift as long as they comply with the following at the date of making the public deed:
a) They have worked or provided a service to the gifted enterprise or business for a minimum of ten years.
b) They are entrusted with responsibilities in the running of the enterprise or business and have had that role for a minimum of five years.

Reductions for the gift of a share in a company belonging to the donor

1. For gifts made to a spouse, ascendant or descendant of a share in a company, a reduction of 95% of the value of the gift can be applied.

2. This reduction does not apply to shares in an institution of collective investment.

3. Recipients must comply with the following:
a) The gift must be formalized in a public deed.
b) The donor is 65 years of age or over, or has a permanent or severe disability.
c) The entity does not have has its principal activity the ownership of assets but has a real economic activity.
d) The donor must have an individual holding of at least 5% in the equity of the company, or 20% when calculated with the holdings of a spouse or registered unmarried partner, ascendants or descendants, siblings and uncles and aunts, nephews and nieces, including adopted relatives.
e) The donor has had a managerial role in the company.

4. The recipient must retain ownership for at least 5 years from the date of the public deed formalizing the gift, unless they die within this period.

5. Recipients of a share in a company, other than those related to the donor as stated in 1. can apply a reduction of 50% of the value of the gift as long as they comply with the following at the date of making the public deed:
a) They have worked or provided a service to the gifted enterprise or business for a minimum of ten years.
b) They have designated job responsibilities in the running of the enterprise or business and have had that role for a minimum of five years.
c) Their holding amounts to more than 50% of the capital of the company.

Reductions for cash gifts to buy or renovate a habitual residence

1. A reduction of 85% can be applied for cash gifts (with a limit of 24,040€ for either one or successive gifts in total) from ascendants to descendants under 35 years of age at the time of making the public deed as long as they comply with the following:
a) The gift is to buy or renovate a habitual residence
b) The acquisition of the residence, must be made within a period of 6 months from the tax being due, or from the date of the first gift if more than one. For residences under construction or renovation, the time period to start is 6 months and works must be completed within 2 years.
c) The recipient must retain ownership for a period of 5 year.
d) The gift is recorded in a public deed stating that the cash gift is to be used exclusively for the purposes of acquiring or renovating a habitual residence.

2. When the recipient has a grade of disability of between 33% up to 65% the limit of the gift is increased to 25,242€, and the reduction is 90%. For disabled people with a grade of 65% or over the limit is 26,444€ and the reduction is 95%.

Reductions for cash gifts to start up or acquire an individual enterprise or professional business or shares in a company

1. A reduction of 85% can be applied for cash gifts (with a limit of 100,000€ in total for either one or successive gifts, from one or more donors) from ascendants to descendants under 40 years of age at the time of making the public deed on condition that:
a) The business or individual enterprise, or company is based physically and for tax purposes in the Autonomous Community of Canary Islands.
b) The acquisition or founding must be made within 6 months of formalizing the donation.
c) The existing assets of the recipient cannot be greater than 300,000€.
d) The individual enterprise or professional business does not have as its main activity only the possession of assets.

2. The recipient must continue to have a managerial role in the enterprise, business or company for a minimum of 5 years from the date of the public deed formalizing the gift.

Reductions for contributions to “Patrimonios Protegidos” for disabled people.
For contributions to disabled people there is a reduction of 95%.

Deductions on the tax amount to pay according to kinship

Ascendants, descendants, and spouses can apply a deduction on the tax due on gifts. The gift must be formalized in a public deed although this is not necessary for insurance policies which must be taxed as gifts.
The percentages of deduction are as follows:
Descendants, adopted descendants, ascendants, adopted ascendants and spouse: 99.9% with no limit on the amount.

This deduction is not applicable to those gifts which have benefitted from the deduction in the previous 3 years, unless the acquisition was from mortis causa.

NB Unmarried registered partners are equivalent to spouses, adopted relatives to blood relatives.

• The question now is when can these benefits be taken advantage of?
  When the gift is of immovable assets located in the Canary Islands or the gift is of other kinds of assets when the beneficiary is a resident in the Canary Islands.

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