New tax relief on inherited homes in Malaga comes into force on Friday

After completing the administrative process and the public consultation phase, Malaga will start applying new discounts on capital gains tax on inherited property from Friday, 27 March.

The system used to calculate this tax is not easy to understand. Sellers pay it when they sell a property (process known as 'inter vivos') and heirs pay it when they inherit one ('mortis causa'). Each follows different rules and tax breaks.

In inheritance cases, families not only deal with the loss of a loved one but also have to pay tax on a property that was already paid for during the deceased's lifetime.

For inheritances, the city has increased the discount for non-cohabiting heirs from 12.5% to 25%. Last year was the first time the city council granted any relief to heirs who did not live with the deceased. The local government has said it plans to increase these discounts gradually up to the legal maximum of 95%.

In practical terms, heirs who cannot prove they lived with the deceased will receive a 25% reduction on the full tax bill, provided the property's cadastral value does not exceed 150,000 euros. The council estimates this measure will cost 1.8 million euros and benefit around 8,000 families.

This measure adds to existing tax breaks for relatives who lived with the deceased. These can reach a 95% reduction for properties with a cadastral value below 100,000 euros, at an annual cost of around one million.

Since 2022, changes to the calculation method have reduced the average tax bill by 36% for both sales and inheritances. In practice, this means taxpayers in Malaga now save around 20 million euros per year. To date, the central government has not compensated Spanish local councils for this amount.

Furthermore, the updating of the coefficients set by the central government for capital gains tax means that in 2025 the people of Malaga will pay an average of 6% less.

The tax has sparked significant controversy in Malaga. The city council expects to lose more than 70 million euros due to incorrectly charged capital gains tax in the past - an issue linked not to local management, but to court rulings and changing national legislation.