Only three EU countries collect more than Catalonia with inheritance tax.

BarcelonaOnly three countries in the European Union collect more than Catalonia from inheritance and gift tax, although there are two autonomous communities in the state—the Balearic Islands and Asturias—that also collect more, according to a study by the Bank of Spain. The report, published on July 1 and titled The possible revenue impact of some hypothetical reforms to the inheritance and gift tax, It points out that all autonomous communities could collect more if they adjusted the rates paid for this tax to the levels they had in 1996, when the Spanish government ceded its management to the autonomous communities.

The Generalitat's coffers obtained approximately €981 million in 2023 from inheritance and gift tax, of which €833 million came from inheritances (i.e., the tax on inheritances) and €148 million from donations (transfers of assets during life), according to data from the Department of Economy. This is equivalent, according to calculations by the Bank of Spain, to 0.34% of Catalonia's gross domestic product (GDP, the indicator that measures the size of an economy).

This percentage places Catalonia at the top of the ranking of revenues from this type of tax in Europe. In this sense, if it were to become an independent state, only France, Belgium, and Finland would have collected more in the European Union. In the case of Finland, the Nordic country's tax authorities collected the equivalent of 0.43% of its GDP two years ago, while in Belgium it was significantly higher, at 0.62%. However, France is by far the EU country with the heaviest inheritance and gift tax, with revenues equivalent to 0.76% of GDP.

However, Catalonia is not the region with the highest revenues. The Balearic Islands, with 0.35%, and Asturias, also with 0.34%, collected slightly more than the Catalan government. The Spanish average was 0.23%, while the EU average was 0.15%. Five autonomous regions—the Canary Islands, Castilla-La Mancha, Extremadura, Andalusia, and Murcia—collect less than the European average.

A progressive tax

According to experts from Gestha, the union of technicians at the Ministry of Finance, the inheritance tax is one of the three taxes in force in Spain with a clearly progressive effect, meaning it transfers money from the wealthiest to the poorest (the other two being personal income tax and wealth tax). Meanwhile, the other taxes have the opposite effect, favoring the highest incomes and penalizing low-income families, including corporate tax and VAT, two of the three most important.

In the case of Catalonia, the inheritance tax is a tax that, for practical purposes, begins to tax inheritances of high net worth individuals or those between distant relatives or people without family ties, since inheritances between spouses or from parents to children—and, although to a lesser extent, also from children to grandchildren or between. Also heavily discounted are the primary residences of the deceased that pass to immediate family members.

This means that, according to 2022 data from the Department of Economy, three out of four Catalan taxpayers who had to pay this tax after inheriting, paid one euro or less.

However, another recent study by the Bank of Spain suggests that in Catalonia there is a potential loss of income through exemptions on assets inherited from family businesses, which particularly benefits the wealthy. Something similar This also happens with the wealth tax, according to another study by Pompeu Fabra University.

These tax exemptions have been introduced in all autonomous communities since 1996, when, with a new reform of the regional financing system, the State agreed to cede not only tax collection but also regulatory authority over the tax to the regional governments. Thus, the transfer of powers meant that many governments directly cut the tax without taking the impact into account or modified it to tax less the majority of the population who receive small inheritances.

According to the Bank of Spain study, if the autonomous communities were to restore the tax rates established by state law and the reductions were eliminated, revenue across Spain as a whole would increase significantly, reaching 0.7% of GDP in the case of 2023, which would put the State at a disadvantage.

In Catalonia, a return to the levels established by Spanish law would mean an increase in tax revenue of €1.249 billion, according to data from two years ago analyzed by the Bank of Spain. The increase in tax revenue by 2023 would be almost €292 million without the current discounts; another €325 million to restore the state rate; €486 million for reductions for close kinship; and €144 million for abolishing other reference parameters.