The “Prohens Law” vs. the “Armengol Law”. Reflections in the newspaper Última Hora on the elimination of inheritance tax

Reflections in the newspaper Última Hora on the elimination of inheritance tax

The “Prohens Law” vs. the “Armengol Law”

Over the last few weeks, and as a result of the elimination of Inheritance Tax from parents to children – and spouse or common-law partner – the discussion has arisen as to whether taxpayers, when it comes to settling, will avail themselves of the new measures introduced by the government of Margalida Prohens or, on the contrary, will remain in taxation under the rule approved during Francina Armengol’s term of office.

The basis of the dispute is that, since July 2023, inheritances -including inheritance agreements- from parents to children -and straight line, grandparents, grandchildren, etc.-, as well as in favour of the spouse or common-law partner, are 100% tax-free, so that nothing is paid regardless of the amount of the inherited property. However, properties cannot be declared for a value higher than the reference value of the Cadastre increased by 20%.

Those who declare them for a higher value will not be able to take advantage of the rebate, and will be taxed according to the previous rule, paying 1% on the first 700,000 euros, with progressive increases from 8 to 20% of the rate.

And where is the discussion? Well, if these inherited properties are subsequently sold for a higher price than that declared in the “mortis causa” transfer, the gain obtained will be taxed in Personal Income Tax at rates of between 19 and 28%.

Well, from my point of view, and regardless of the “preferences” of each taxpayer, there are two essential aspects.

First of all, we are not talking about two pieces of legislation that establish tax benefits. In the case of the so-called “Ley Armengol”, it is a tax increase that takes place in 2015, since since 2007 inheritances were taxed at 1%, regardless of the estate, and it is from 2015 when it is increased for amounts over 700,000 euros. In contrast, with the new law, the so-called “Prohens Law”, a tax benefit is introduced with a 100% rebate on the resulting tax liability.

Secondly, and more important for me, is to analyse what the legislator is seeking with the new measure.

What is intended, in the event of death or inheritance agreement, is that the assets remain in the family estate, without, as was previously the case, having to be “mis-sold” in order to pay taxes. Therefore, in the event of a transfer “mortis causa”, the assets, declared at those reference values that the rule identifies with the market value, will not be taxed.

It is a different matter if the person who has received them wants to sell them immediately, in which case, as is normal, he or she will have to pay income tax like any other “son or daughter of a neighbour”.

The measure does not seek to become a kind of “tax amnesty” in the transfer of real estate, but rather to protect the transfer from parents to children, including the possibility of planning the succession by means of inheritance agreements. And the tax relief is costly enough without also losing income tax revenue when a significant profit is obtained, legitimately of course, with a subsequent sale… although, of course, this is only my humble point of view.


Jorge Sainz de Baranda Brünbeck

Co-founder and Partner Lawyer

FONT MORA SAINZ DE BARANDAlawyers and economists