Author: María Gracia Moreno Vegas
The previous article deals with the transfers of real estate mortis causa and donations as far as their regulation and formalities are concerned, however, the control of these actions is one of the most important elements of these acquisitions, since it can involve a large capital outlay if its self-assessment is not developed in the most appropriate manner.
How will real estate acquisitions mortis causa be taxed?
INHERITANCE AND GIFT TAX:
Inherited real estate appraisal and obliged to present it:
Before granting the inheritance award, the property must be appraised and its real value ascertained so that it can be declared, and taxed based on the tax rate provided by the Successions and Donations Tax Law 29/1987 of December 18 and the regulations that articulate it, which dictate that individuals not resident in Spain and individuals resident in Spain when the deceased is or is not resident in Spain or when they receive a property located abroad must pay tax before the Inland Revenue.
However, although there is a state law, it must be taken into account that the Autonomous Communities will also have legislative competence on the deductions and allowances applicable in each case.
For this appraisal, one of these three values can be used:
-Cadastral or land registry value
-Tax value established by the Autonomous or State Treasury.
Normally, if a property is declared for a value lower than the tax value, the Regional Treasury may require a verification of the value of the property, and, based on the tax value, impose higher payments to the heir.
It is important to differentiate whether the taxpayer of this tax is an heir or a legatee, since the latter will not have to respond to the personal debts of the deceased and the increase of the estate for “trousseau domestic”, which involves the increase of 3% of the estate to the value of the estate, will not be applicable to him/her.
Deadlines for filing:
Once these values have been consulted, one of them must be chosen in order to base the succesions tax return on this, which may be filed up to six months after the mortis causa acquisition of the property.
An extension of up to six more months can be requested when this is requested during the first 5 months of the period for filing the succession and donations tax self-assessment.
Calculation of the taxable base and tax liability: reductions, deductions and allowances
The appropriate reductions may be applied to the taxable base according to the degree of kinship between the heirs and the deceased, first those of the State and then those of the regional order:
|KINSHIP BY CONSANGUINITY|
|VERTICAL ASCENDANT/DESCENDANT LINE|
Parents and offspring
Does not exist
Grandparents and grandchildren
Great grandparents and great grandchildre
Uncles/aunts and nieces/nephews
Great great grandparents and great great grandchildren
First cousins and great uncles/aunts
|KINSHIP BY AFFINITY|
|I||In-laws, sons/daughters in-law||I||Does not exist|
|II||Spouse’s granparents or grandchildren||II||Brothers/sisters in-law|
|III||Spouse’s great grandparents or great grandchildren||III||Spouse’s aunts/uncles|
|IV||Spouse’s great great grandparents or great great grandchildren||IV||Spouse’s first cousins and great aunts/uncles|
Once the kinship has been determined, nation-wide reductions are:
|Group||Tax reduction by kinship|
I: adquisitions by descendants and adopted descedants younder than twenty one years old.
15.956,87 euros, plus 3.990,72 euros for each year below twenty one that the successor/beneficiary may be, with the limit of 47.858,59 euros.
II: adquisitions by descendants (biological or adopted) that are twenty one years of age or older, spouses, ascendants and adoptive parents.
III: adquisitions by second and third degree collaterals ascendants and descendants by affinity,
(siblings with the limit of 15.000 euros)
IV: adquisitions by by fourth degree or further distant collaterals and strangers.
|No kinship reduction|
Likewise, if the heir is under twenty one years of age and a descendant included in kinship group I, there will be a reduction of:
-For those aged 20: 19.947,59 € -For those aged 19 : 23.938,31 €
-For those aged 18: 27.929,03 € -For those aged 17: 31,919.75 €
-For those aged 16: 35.910,47 € -For those aged 15: 39.901,19 €
-For those aged 14: 43.891,91 € -Up to 13 years old: 47.858,59 €
On the other hand, the state legislation foresees reductions of another nature, such as for example the reductions due to handicap, or due to the type of inherited property.
Once the taxable base has been calculated, a rate of 7.65% to 34% must be applied, depending on the amount inherited, and a multiplier coefficient based on the pre-existing assets, which will be between 1 and 2.4.
Application of allowances and deductions:
Once the tax liability has been fixed, allowances and deductions will be applicable to it, being of first application those of state order, followed by those of autonomous order. For example, in the Community of Madrid, the allowances according to kinship are as follows:
1.-The heirs included in Group I and II will be entitled to apply a rebate of 99 percent of the Successions Tax quota, with effect from 01/01/2007. This means that they will only have to pay 1% of the tax liability.
Group I: Includes descendants (children, grandchildren, etc.) and adopted children under 21 years of age.
Group II: Includes descendants (children, grandchildren, etc.) and adoptees of twenty-one years of age or older, spouse, ascendants (parents, grandparents, etc.) and adoptive parents.
2-For deaths occurring on or after January 1, 2019 when the heirs are siblings, a 15% reduction of the tax liability will be applied.
3.- In the deaths that take place from January 1, 2019 when the heirs are uncles/aunts or nephews/nieces by consanguinity, a bonus of 10 % of the tax quota will be applied.
After this, it is necessary to decide the destination that such inherited property will have, since the rest of its taxation will be different according to the use that will be given to it.
IF IT IS INTENDED TO RETAIN THE PROPERTY:
It will be necessary to liquidate:
-The Municipal Capital Gains Tax or IIVTNU: which is a direct municipal tax, it is laid down in the Regulatory Law of the Local Treasuries (TRLRHL), and taxes the increase in value of urban land resulting from the transfer of these properties.
For its calculation, the cadastral (land registry) value of the land on the date of transfer must be multiplied by the number of years that it has been part of the seller’s assets, the result of which is multiplied by the coefficient or rate established by each City Council, from which bonuses may be subtracted depending on whether the requirements for these are met.
It will have a liquidation period of up to six months from the date of death of the deceased or, at the express request of the taxpayer (heir or legatee), this period may be extended up to a maximum of one year from said date.
-Personal Income and Wealth Tax or IRPF: although according to art. 6. 4 of the Personal Income Tax Law (Law 35/2006, of November 28, on Personal Income Tax and partial modification of the laws on Corporate Income Tax, Non-Resident Income Tax and Wealth Tax), transfers of assets subject to Succesions and Donations Tax are not directly subject to this tax, but the capital gain that may have resulted from these operations (if this has been the case) is later taxed.
Since the fact of being the owner of a property (even if it has been inherited) will imply the obligation to pay tax on it, unless it is the habitual residence of the heir, in concept of income received by renting (if the inherited property has a tenant) or according to the concept known as imputation of real estate income.
This imputation of income will be accounted for as the equivalent of 1.1% or 2% of the cadastral value in proportion to the date of acquisition of the inherited property. The subject of this taxation will be either the owner or the usufructuary of the inherited property.
-The Real Estate Tax or IBI: conceived in articles 60-70 of the Regulatory Law of Local Treasuries (TRLRHL) and modified by Royal Decree 1464/2007, of November 2, 2007, it is levied on surface rights, usufruct and ownership of urban and rustic real estate. It must be paid by the new owner of the property transferred mortis causa or by its usufructuary.
IF THE PROPERTY IS TO BE SOLD:
It will have to be liquidated:
–IIVTNU and IBI: to the same extent as described for the previous assumptions that intend to maintain the ownership of the property. With the exception that the capital gains tax must be paid twice: once due to the acquisition of the property and once due to its disposal.
-The Personal Income and Wealth Tax or IRPF: tax must be paid on the capital gain arising from the sale of the inherited property, based on its market value.
It should also be taken into account that, if this was not done before their death, the heir will have to make the corresponding Income Tax Return of the deceased, facing the tax obligations derived from this with the mass of inherited assets or state. Or, in case of not doing so, said heir may be required to face these obligations with his own assets, bearing the corresponding penalties.
How are inter vivos real estate acquisitions taxed?
SUCCESSIONS AND DONATIONS TAX:
Appraisal and amount of the tax:
Donations and inter vivos inheritances also merit an appraisal of the real value of the property, following the aforementioned Succesions and Donations Tax Law 29/1987 of December 18, 1987, from which only deductible charges and debts are subtracted, with no room for any reduction to the taxable base.
In the Community of Madrid, for accruals occurring as from January 1, 2022, the value of collective dwellings, parking spaces, storage rooms, attached single-family houses, isolated single-family houses and rural properties, will be the reference value provided for in the regulations governing the real estate cadastre. However, if the value of the real estate declared by the interested parties is higher than the reference value, the latter will be taken as the taxable base.
The taxable base is decreased by the reductions to which the interested party is entitled and the taxable base is obtained on which the corresponding rate and the multiplying coefficients will be applied to obtain the tax liability.
However, the autonomous community laws establish different possibilities of allowances. Taking the Community of Madrid as a reference:
–10% Tax credit: as from January 1, 2019 between collaterals of third degree by consanguinity, that is, uncles and nephews.
–15% Tax credit: as from January 1, 2019 between siblings.
–99% Tax credit: when the donee, person receiving the donation, is a descendant (child, grandchild, etc.), spouse or ascendant (parents, grandparents, etc.) or an adoptive ascendant or adopted descendant (Groups I and II).
Likewise, if the property donated is the habitual residence of the donee, and it is between relatives of these groups (I and II), it will be able to benefit from a 100% rebate. These donations must be recorded in a public deed for the rebate to be effective.
Place to file the self-assessment and deadlines:
The self-assessment must be filed by the donee within 30 working days from the time of the donation in:
- The Autonomous Community where the real estate is located.
- If the properties are located in different Autonomous Communities, where the properties of greater value are located.
- If the donated properties have the same value, in the Autonomous Community where one of them is located.
- If the donated property is abroad, in the Tax Office of Madrid.
OTHER TAX RATES OF COMPULSORY SELF-ASSESSMENT:
After this, the IIVTNU or municipal capital gains and IBI must be declared to the same extent as would be done in the case of an inheritance. The exceptions to the first of these, which is of obligatory self-assessment even if its value is not equal to zero, are the cases in which there has not been an increase in the value of the property or that this is transferred “at a loss”.
However, with regard to Personal Income Tax, it must be taken into account that:
-Calculating the transfer value involves subtracting the taxes and expenses inherent to the transfer (excluding those paid by the donor, such as the IIVTNU) from the actual amount of the donation that would have been made (the value that appears in the deed or has been declared for Inheritance and Gift Tax purposes), which may not be less than the market value,
–Calculating the acquisition value involves adding the cost of the investments and improvements made in the transferred property, the expenses and taxes inherent to the acquisition (VAT, ISD, AJD, ITP) with the exception of the interests, to the real amount (which appears in the deed or has been declared for the purposes of the ISD). From this must be subtracted the tax deductible amortizations, and the tax reductions or benefits such as the exemptions for people over 65 years of age or for being the donor’s habitual residence.
The donor, therefore, will be taxed in the savings base the tax levied on the differences in value between the acquisition price and the price stated in the deed of donation. The application percentages in force according to the amount of the gain are:
Net “savings” taxable income (capital gains)
Up to 6.000€
Between 6.000,01€ and 50.000€
Between 50.000,01€ and 200.000€
More than 200.000,01€