The Balearic Government has recently approved Order 5/2026 (16 March), introducing a significant update to the regional real estate tax framework. The reform increases the maximum property value eligible for certain tax benefits in Transfer Tax (ITP), Stamp Duty (AJD) and Inheritance and Gift Tax (ISD), with direct implications for residential transactions.
This legislative change responds to a clear market distortion: the previous thresholds had become misaligned with current property values, particularly in high-demand areas such as Mallorca, Ibiza and Formentera. As a result, a growing number of transactions had been effectively excluded from the scope of existing tax incentives.
Reduced Transfer Tax regime: structure and eligibility
The Balearic tax system provides a tiered structure of reduced Transfer Tax rates applicable to the acquisition of a primary residence, subject to specific personal and objective requirements.
At the highest level, a full exemption (0%) may apply to certain taxpayers, notably individuals under 30 years of age and persons with disabilities, provided that income thresholds are met, the taxpayer has been resident in the Balearic Islands for at least three years, and the property qualifies as their first primary residence.
A reduced rate of 2% is available to other qualifying groups, including individuals under 36, large families, single-parent households and taxpayers with dependent persons with disabilities.
Finally, a reduced rate of 4%, which is the most commonly applied, is available in broader circumstances, including for taxpayers over 36 years of age.
In all cases, the property must qualify as the taxpayer’s habitual residence, and the acquirer must not hold (directly or indirectly) a 50% or greater interest in another residential property.
Updated property value thresholds
The core element of the reform is the adjustment of the maximum property value eligible for these tax benefits, now linked to average market prices by island.
The previous general threshold of €270,151.20 has been updated as follows:
- Mallorca: €307,089 (approx. +14%)
- Ibiza and Formentera: €378,212
- Menorca: remains at €270,151.20
This adjustment significantly broadens the practical scope of the reduced tax regime, allowing a greater number of transactions to qualify.
Importantly, Order 5/2026 applies retroactively from 1 March 2026, meaning that transactions completed prior to its formal approval may benefit from the new thresholds, provided they fall within the statutory filing period.
Partial application mechanism
A key technical feature of the reform is the confirmation of a partial application regime.
Where the purchase price exceeds the applicable threshold, the reduced rate is applied only up to the relevant limit, with the excess taxed at the standard rate.
This mechanism avoids the “cliff-edge” effect of the previous system and allows for a more proportionate tax outcome in higher-value transactions.
Impact on Inheritance and Gift Tax (ISD)
The reform also extends to Inheritance and Gift Tax (ISD), increasing the maximum value of a primary residence eligible for regional reliefs.
The substantive requirements remain unchanged — including kinship requirements, qualification of the property as the deceased’s primary residence, and a minimum holding period (generally five years). However, the increased thresholds allow a larger portion of the property value to benefit from the applicable reduction.
Any excess above the threshold is taxed under the general ISD rules.
A similar framework applies, with specific nuances, to certain inter vivos transfers of primary residences.
Stamp Duty (AJD): mortgage-related transactions
Order 5/2026 also affects Stamp Duty (AJD), particularly the reduced 1.2% rate applicable to notarial deeds linked to the acquisition and financing of a primary residence, including mortgage loans.
While the substantive requirements remain unchanged — notably, the classification of the property as the taxpayer’s habitual residence for personal income tax purposes — the reform expands the economic scope of the relief by increasing the maximum property value eligible for the reduced rate.
As with ITP, any excess value is taxed at the general rate.
Practical considerations
The application of these tax benefits requires a case-by-case assessment. Eligibility depends not only on the property value but also on the taxpayer’s personal circumstances, compliance with residency and income thresholds, and the correct classification of the property as a primary residence.
Furthermore, the introduction of partial application rules adds a layer of complexity to the tax calculation, particularly in transactions exceeding the applicable thresholds.
Conclusion
Order 5/2026 represents a targeted adjustment of the Balearic tax framework to reflect current market conditions. By increasing the applicable thresholds without altering the structure of the incentives, the reform restores the practical effectiveness of existing tax reliefs in the acquisition of primary residences.
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