Inheritance taxes: what they are and who has to pay

Stamp Tax, IRS, IMI and capital gains are the taxes that may fall on inheritances, with Stamp Tax being the first to be applied. But it doesn´t mean you have to pay them all.

What you will pay in inheritance taxes depends on the type of heir you are, as well as the type of assets you inherited.

However, whether or not you have to pay taxes, you must declare the inherited assets subject to taxation to the Finance Department and there are deadlines for doing so. The declaration is made by submitting Model 1 of the Stamp Tax, the main tax levied on inheritances and must be made within 90 days of death.

Exemption from payment depends on the type of asset that is received, but also on the degree of kinship of the beneficiary with whom the donation is made (or who assigned the assets through inheritance).

INHERITANCE TAXES: THE STAMP TAX
Stamp Tax on inheritances replaced inheritance tax, being 10% of the value of inherited assets.

However, there are exceptions to your payment. Legitimate heirs are exempt from paying this tax, and there are inherited assets that are not subject to tax regardless of the heir. Heirs are considered to be the spouse or partner in the case of a de facto union, as well as parents and children, under the terms of Article 6 of the Stamp Duty Code.

Who is exempt from paying Stamp Duty?
The following are exempt from paying this tax:

The spouse or de facto partner;
Descendants: children and grandchildren;
Ancestors: parents and grandparents.
In other words, by law, the transfer of assets to legitimate heirs is free. But even though they are exempt from paying Stamp Duty, all inherited assets subject to taxation must be communicated to the Finance Department.

Goods subject to taxation
According to the law, they are subject to taxation and, therefore, if you inherit them you must declare to the tax authorities:

Real estate (rustic and urban);
Movable assets subject to registration such as cars, motorcycles, boats and aircraft;
Bank accounts, shares, works of art, copyrights and investment gold.
Goods not subject to taxation
They are not subject to tax and therefore do not have to be declared to Finance:

Household goods, i.e. the contents of the house excluding works of art;
Personal property such as clothing, watches and jewelry;
Amounts invested in Retirement Savings Funds, Education Savings Plans, Pension Funds and securities and real estate investment funds or securities and real estate investment companies;
Credits from Life Insurance;
Pensions and/or subsidies granted, even as a death benefit, by Social Security systems;
Family benefits that have remained outstanding;
Monetary values up to 500 euros;
Donations made under the Patronage Law.
Declaration to Finance
The declaration of the assets included in the inheritance must be made by the head of the couple by the end of the third month after the death. If you don´t know all of the deceased´s assets, know that there are ways to identify them.

The head of the couple is responsible for managing the deceased person´s assets (being the closest family member) until the assets are shared. In this context, it is the head of the couple who is responsible for communicating the death and the assets that constitute the inheritance to the Finance Department.

The declaration is made by completing Model 1 of the Stamp Tax and annexes I and II, which relate to the identification of assets and heirs (if there are more than four heirs, annex III will also have to be submitted), whose instructions information can be found here.

Please note that the declaration must be delivered in person to the Tax Office in accordance with article 26 of the Stamp Duty Code.

Along with the model you will also have to deliver:

Death certificate, NIF and Citizen Card of the deceased person;
NIF and Citizen Card of each of the heirs or beneficiaries;
Will (if applicable);
Donation deed (if applicable).

If you do not make the declaration
If you do not file a declaration, the tax authorities will list all of the deceased´s assets subject to tax. He then proceeds to collect Stamp Tax on them from the head of the couple.

If the declaration has errors or omissions, AT will also list the assets and charge Stamp Duty.

How is the amount of tax payable calculated?
Determining the value of inherited assets on which tax will be levied depends on the type of asset.

Thus, for real estate, under the terms of article 13 of the Stamp Tax Code, the Tax Patrimonial Value (VPT) is taken into account in accordance with the IMI rules at the date of transfer.

If the property is not registered in the matrix or does not have heritage value, the value will be the higher between the declared value and the value resulting from the assessment carried out by the AT.

For movable assets under article 14 of the Stamp Duty Code, the value will be the greater of the official value (if any) and the value declared by the beneficiary, and must be close to its market value. In the case of cars, motorcycles, boats and aircraft, AT may resort to assessments by experts, with the highest value being valid.

Payment of Stamp Tax
After the declaration has been submitted, the head of the couple will receive, at their tax address, notification of the amount they will have to pay in Stamp Tax. You can pay in full or in installments, if the total amount exceeds 1,000 euros, and the installments cannot be less than 200 euros.

If you choose to pay in advance, you will have 15 days to inform the Finance Department and you will have a 0.5% discount on the value of the installments, except for the first. The billing note you receive will contain the value of the installments as well as the cash payment amount with a discount.

Payment in full must be made by the end of the second month following receipt of notification. When paying in installments, the first installment is paid on the same date and the remainder every six months.

Note that the payment is the responsibility of the head of the couple, but as the tax is on the inheritance and not on the head of the couple, he will have to make accounts with the remaining heirs.

INHERITANCE TAXES: IRS
As long as the inheritance remains undivided, the income generated by the inheritance will have to be declared with the IRS.

But as the inheritance is not a natural person, each of the heirs will have to include in their annual IRS declaration the income of the share that corresponds to them.

Interest, rent and capital gains are covered, which, as they are category E, F, and G income respectively, must be declared and therefore taxed.

Capital gains on real estate
If you inherited a property and sell it, the capital gains may or may not be taxed depending on the year in which you inherited it.

For the Tax Authorities, the Stamp Tax settlement date is the date on which you acquired the property (even if the division of assets was earlier).

If you sell a house inherited in its entirety before 1989, there is no need to pay capital gains. If you inherited it at a later date you will have to pay, and to calculate the capital gains, the purchase value of the property is the VPT shown in the Stamp Tax declaration made on the date of death.

If the property was owned by a couple and due to the death of one member of the couple, they inherited part of it before 1989, and due to the death of the other, they inherited the remainder at a later date, according to the AT, the acquisition dates are different. You will only pay capital gains on the last part of the estate.

Please note that, in any case, you will have to include the capital gains in the annual IRS declaration for the year in which the sale takes place. The exempt part must be included in Annex G1 (table 5) and the taxable part in Annex G (table 4).

INHERITANCE TAXES: IMI
The Municipal Property Tax (IMI) is levied on all properties, whether owned by individuals or undivided inheritances. In other words, IMI is another tax that will be levied on inheritance.

If they belong to an undivided inheritance, payment is due by the head of the couple, who will then have to settle accounts with the remaining heirs.

However, in this case, it is necessary to take into account the existence of the Additional IMI (AIMI) due, if the total value of the properties exceeds 600 thousand euros and whose rate for undivided inheritances is 0.7%.

In the case where the undivided inheritance is subject to the payment of AIMI, the solution to avoid paying this tax is to declare each heir´s share to the Tax Authorities. In this way, the inheritance is no longer taxed as a whole, with tax now being paid by each of the heirs for the part that corresponds to them.

How to divide properties in tax terms among heirs?
For the division to be done, the procedure is as follows:

The head of the couple will have to submit to the Tax Authorities the declaration confirming the heirs of an undivided inheritance in March, identifying the properties, the heirs and their respective share;
In April, the heirs confirm their share by filling out a declaration of confirmation of heirs of undivided inheritance. From that moment on, the IMI on inherited properties will be charged directly to the heirs.

Source: Ekonomista