The Mallorcan succession pact has become a key tool for planning the transfer of family wealth in Mallorca. In addition, after the tax changes approved in the Balearic Islands in 2025, many families are asking whether it is now better to make a lifetime gift, wait for inheritance or use this succession instrument.
For years, estate planning in the Balearic Islands was based on a clear difference. On the one hand, inheritance between parents and children could be very favourable under Spanish Inheritance and Gift Tax. On the other hand, lifetime gifts still involved a relevant tax cost.
However, the 2025 Balearic tax reform has changed this scenario. Currently, lifetime gifts between direct relatives in Groups I and II may benefit from a 100% rebate in Spanish Inheritance and Gift Tax. Therefore, from the perspective of this tax, lifetime gifts, inheritance and succession pacts may now seem much more similar.
Nevertheless, this equality is only partial. The decision should not be made by looking only at Spanish Inheritance and Gift Tax. It is also necessary to analyse the transferor’s Personal Income Tax, municipal capital gains tax and possible anti-abuse rules.
For this reason, before transferring a property or reorganising family wealth, each case should be studied carefully. At Resitax Spain – Beyond Taxation, estate planning experts in Mallorca, we help residents, non-residents and international families choose the most appropriate route.
What has changed in the Balearic Islands regarding gifts and inheritance?
The 2025 tax reform has significantly changed estate planning in the Balearic Islands.
Before this reform, making a lifetime gift could be less attractive than waiting for inheritance. The reason was simple: inheritance between direct relatives benefited from a very favourable rebate, while lifetime gifts could bear a higher effective tax burden.
As a result, many families chose to wait until death to transfer assets. In other cases, when it was necessary to bring the transfer forward, the Mallorcan succession pact was considered.
After the reform, lifetime gifts between direct relatives may benefit from a 100% rebate in Spanish Inheritance and Gift Tax. Even so, this does not mean that all options are the same.
Therefore, the answer requires a broader analysis. Although Spanish Inheritance and Gift Tax may be rebated, the transaction may generate other relevant tax costs.
Lifetime gift, inheritance and succession pact: three different options
Making a lifetime gift, inheriting and signing a succession pact are not the same.
Although all three options may receive similar treatment under Spanish Inheritance and Gift Tax, their tax and legal effects are different. Therefore, it is not advisable to choose one route without analysing the whole transaction.
A lifetime gift may generate a capital gain in the donor’s Personal Income Tax. In contrast, inheritance usually avoids that gain in the deceased. Meanwhile, the Mallorcan succession pact may allow succession effects to be brought forward during lifetime, provided that the legal requirements are met.
Consequently, the analysis must go beyond the regional tax.
What happens if a property is gifted during lifetime?
A lifetime gift allows an asset to be transferred before the owner’s death.
In the Balearic Islands, after the tax reform, a lifetime gift between direct relatives may benefit from a 100% rebate in Spanish Inheritance and Gift Tax. However, this does not mean that the transaction is always tax neutral.
The main issue appears in the donor’s Personal Income Tax.
For tax purposes, a gift is considered a lucrative inter vivos transfer. Therefore, if the property has increased in value since it was purchased, the donor may have to declare a capital gain.
Example of a property gift in Mallorca
Imagine a property bought twenty years ago for €200,000.
If it is now gifted for a value of €600,000, there may be a capital gain of €400,000 for the donor.
Although the recipient may not pay Spanish Inheritance and Gift Tax because of the regional rebate, the donor could still have to pay tax on that gain in Personal Income Tax.
In addition, this situation may surprise many families. The donor receives no money from the transaction, but may still have to pay tax on the increase in value of the property.
Why a lifetime gift can be expensive in Personal Income Tax
One of the most common mistakes is to assume that a rebated gift has no tax cost.
However, the regional rebate applies to Spanish Inheritance and Gift Tax. It does not automatically eliminate taxation in the donor’s Personal Income Tax.
For this reason, gifting a home, land or any property in Mallorca requires a prior calculation of the latent capital gain.
When that gain is high, the gift may generate a significant tax burden. Moreover, that burden falls on the person transferring the asset, not on the person receiving it.
As a result, before signing a gift deed, a full tax simulation is essential.
Municipal capital gains tax on lifetime gifts
In addition to Personal Income Tax, gifts of urban real estate may also trigger municipal capital gains tax.
This tax applies to the increase in value of urban land. In lucrative transfers, the taxpayer is usually the person who receives the asset.
Therefore, even if Spanish Inheritance and Gift Tax is rebated, there may still be a municipal cost for the recipient.
In many transactions, this tax is not the highest cost. Even so, it must be considered when calculating the real cost of the transfer.
What happens if the family waits for inheritance?
Transfer by inheritance remains, in many cases, a tax-efficient option.
Several tax advantages may arise in an inheritance. First, the rebate in Spanish Inheritance and Gift Tax for direct relatives may apply. In addition, no capital gain arises in the deceased’s Personal Income Tax. Finally, the heir may receive the assets with an updated tax value.
This update may be very important. If the heir sells the property later, the acquisition value can be the value declared in the inheritance. Therefore, the future capital gain may be lower.
Nevertheless, inheritance has an obvious limitation. For inheritance to occur, death must take place. For that reason, it is not always useful for families who want to organise their wealth during lifetime.
What is the Mallorcan succession pact?
The Mallorcan succession pact is a legal institution of Balearic civil law. Its purpose is to allow certain succession effects to be brought forward during lifetime.
Unlike an ordinary gift, the succession pact has a succession nature. Precisely for that reason, it may receive a different tax treatment in certain cases.
In Mallorca, this instrument can be very useful for organising family wealth. It may also help prevent conflicts between heirs and plan the transfer of assets with greater legal certainty.
However, not everyone can use this route. Certain civil and tax requirements must be met.
Main types of Mallorcan succession pact
In practice, there are two particularly relevant types: the universal gift and the “definición”.
Universal gift
The universal gift allows the beneficiary to acquire the status of universal heir.
It is a powerful instrument with important civil law effects. For this reason, it should not be used only for tax reasons. Before signing it, its patrimonial and family consequences should be studied.
Definición or settlement of forced heirship rights
The “definición” allows a descendant to receive an asset during the transferor’s lifetime. In exchange, the descendant waives all or part of their future succession rights.
This instrument can be especially useful when the family wants to organise its wealth in advance. In addition, it may help avoid future disputes between heirs.
Tax advantage of the succession pact compared with a lifetime gift
The main advantage of the Mallorcan succession pact is not currently found in Spanish Inheritance and Gift Tax.
The most important difference lies in the transferor’s Personal Income Tax.
In certain cases, the succession pact may be treated as a lucrative transfer on death. Therefore, it may fall within the non-taxable scenario for capital gains in Personal Income Tax that applies to transfers on death.
This means that a person transferring an asset through a succession pact may not have to declare a capital gain in their Personal Income Tax, even if the property has increased significantly in value.
This is the major difference compared with an ordinary lifetime gift.
Practical example: lifetime gift or succession pact
Let us return to the example of a property in Mallorca purchased for €200,000 and now valued at €600,000.
If the property is gifted during lifetime, the recipient may benefit from the rebate in Spanish Inheritance and Gift Tax. However, the donor could have to declare a capital gain of €400,000 in Personal Income Tax.
By contrast, if the transfer is correctly structured through a Mallorcan succession pact, taxation of that gain in the transferor’s Personal Income Tax may be avoided.
Therefore, where significant latent gains exist, the succession pact may remain a very valuable option.
The five-year anti-abuse rule
The advantage of the succession pact is not absolute.
Spanish Personal Income Tax law includes an anti-abuse rule for succession pacts with present effects. If the beneficiary sells the asset before five years have passed from the signing of the pact, or before the transferor’s death if that occurs earlier, the tax advantage of the value update may be lost.
In that case, the beneficiary may step into the original acquisition value and date of the transferor.
Therefore, the succession pact should not be used as a preliminary step before an immediate sale.
When does a Mallorcan succession pact make sense?
This instrument can be interesting when there is genuine family and estate planning.
For example, it may make sense when a family home is transferred and the beneficiary wants to keep it. It may also be useful for organising wealth among children or bringing forward part of an inheritance.
In addition, it is especially attractive when the property has a high latent capital gain. In those cases, avoiding immediate taxation in the transferor’s Personal Income Tax can make a major difference.
However, the family’s specific situation must always be analysed.
When may the succession pact not be advisable?
The succession pact is not always the best solution.
It may not be advisable if the beneficiary intends to sell the property in the short term. It may also be unsuitable if the necessary civil law requirements are not met.
In addition, this instrument has important succession consequences. For that reason, it should not be used only as a tax-saving tool.
In some cases, an ordinary lifetime gift may be sufficient. In others, waiting for inheritance may be better. The choice will depend on the assets, the family and the real objectives of the transaction.
Requirements to access the Mallorcan succession pact
One of the most important points is to confirm whether the person transferring the asset can validly use this instrument.
In general terms, the Mallorcan succession pact requires a sufficient connection with Balearic civil law. In many cases, the transferor’s Mallorcan civil law status will be relevant.
When foreign residents in Mallorca are involved, the analysis may be more complex. In certain cases, it may be possible to consider a professio iuris in favour of Spanish law under the European Succession Regulation.
This point is especially important in Mallorca, where many international families own real estate and significant assets.
Special attention to non-resident clients
Mallorca has a high number of foreign and non-resident property owners.
For these clients, estate planning requires a more detailed analysis. It is not enough to study Balearic tax rules. Tax residence, nationality, location of the assets and the rules of the country of origin must also be considered.
For example, a German client habitually resident in Mallorca is not in the same position as a British client who owns a property on the island but remains tax resident in the United Kingdom.
Consequently, each case must be reviewed individually.
Lifetime gift, inheritance or succession pact: which option should you choose?
The best option is not always the one that reduces a single tax.
After the 2025 Balearic reform, the analysis must be global. Spanish Inheritance and Gift Tax, Personal Income Tax, municipal capital gains tax and the applicable civil law must all be studied.
Other factors should also be reviewed. These include the current value of the property, the acquisition value, the latent gain, tax residence and the intention to keep or sell the asset.
Only with this complete view is it possible to decide whether it is better to make a lifetime gift, wait for inheritance or formalise a Mallorcan succession pact.
Resitax: tax and estate planning experts in Mallorca
Our team advises residents, non-residents, international families and property owners in the Balearic Islands. The aim is to organise wealth with legal certainty and tax efficiency.
Each transaction is analysed individually. To do so, we assess the impact of Spanish Inheritance and Gift Tax, Personal Income Tax, municipal capital gains tax and the applicable civil law.
Before gifting a property, planning an inheritance or considering a Mallorcan succession pact, professional advice is strongly recommended.
Frequently asked questions about the Mallorcan succession pact
Does the Mallorcan succession pact pay Spanish Inheritance and Gift Tax?
Succession pacts are taxed under Spanish Inheritance and Gift Tax as acquisitions on death. After the 2025 Balearic reform, in many cases they may benefit from the rebate applicable to direct relatives.
Is it better to make a lifetime gift or a succession pact?
It depends on the case. A lifetime gift may be simple, but it can generate a capital gain in the donor’s Personal Income Tax. In contrast, the succession pact may avoid that gain in certain cases.
Can I sell a property received through a succession pact?
Yes, but caution is required. If the property is sold before five years have passed from the signing of the pact, or before the transferor’s death, the Personal Income Tax anti-abuse rule may apply.
Can a foreigner sign a Mallorcan succession pact?
It depends on their habitual residence, nationality, applicable succession law and connection with Mallorca. Therefore, each case must be analysed individually.
Is inheritance still interesting in the Balearic Islands?
Yes. Inheritance may still be tax efficient. In addition, it does not generate a capital gain in the deceased’s Personal Income Tax and allows the tax value of the assets to be updated.
