Inheritance taxation of real estate

There is no doubt that dealing with an inheritance is not always straightforward. The death of a loved one is painful enough as it is, so dealing with the bureaucracy involved can be complex. A number of certificates will be required in order to be able to comply with the last word of the deceased.

If there is a will and the legal requirements are met, this legality is much easier. In any case, it is necessary to have the certificate of last will. The next of kin or witnesses who can prove the relationship should also be present. To clear up any doubts, we are going to give you all the details about taxation in the inheritance of real estate.

What is real estate inheritance?

Inheritance is conceived as the legal act by which one person transfers his or her estate to another (whether as heir, legatee or otherwise). Normally, real estate is included among the obligations and rights that are transferred. Specifically, the Civil Code includes this procedure as the assets, rights and obligations of the person, and it extends until death.

First of all, it is necessary to check whether there is a will or whether an executor has been appointed, and to request death certificates and certificates of last will in order to do this.

Subsequently, an inventory of the assets should be made.

  • Inheritance with a will. Inheriting a property with a will is simpler and it is only necessary to comply with the last will of the deceased. The existence of a will, where the most common is the open will, makes this legal procedure much quicker. However, in the partition or division of the value of the property, it is necessary to make the corresponding calculation and pay the public and private debts.
  • Inheritance without a will. If there is no will, the property is inherited by the relatives. The most common way is to leave the property in equal shares to the spouse and children. If the spouse survives, he or she is entitled to half of the property. If it does not appear in the matrimonial property regime as community property, he or she is entitled to one-third of the property. If there are no direct relatives, it would pass to siblings, nephews, nieces and uncles and aunts. Ultimately, to the fourth degree of kinship.

Taxes payable on the inheritance of the real estate

One of the main doubts in the inheritance of real estate is directly related to the taxes to be paid. Acceptance involves not only dealing with bureaucratic formalities but also with banking and the payment of taxes.

Inheritance tax

This tax is levied on the assets and rights in inheritance. The percentage is progressive, so that, depending on the inherited assets, you will pay more or less. Although there is a state scale of taxation, the autonomous communities have their own scale, which cannot be more burdensome than the state scale. In Catalonia, the current scale is as follows:

  • Up to 50,000, at 7%.
  • From 50,000 to 150,000, at 11%.
  • From 150,000 to 400,000, at 17%.
  • From 400,000 to 800,000, at 24%.
  • From 800,000 and upwards, at 32%.

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Gift tax

Inheritance is not the only way to receive an asset, therefore, it is also useful to know what gift tax consists of. While in the first case, an inheritance is received, which is called succession, in the second case, an asset is given, which is called donation. In order to be valid, it must be applied during your lifetime.

In this type of tax, both parties pay the donor (the one who donates) and the donee (the one who receives). However, each autonomous community has its own requirements. For example, in Madrid, children, spouses and ascendants benefit from the 99% reduction of tax liability. In Andalusia, only if the donations are from parents to children or adapted. In Catalonia, donations that are signed before a notary have a more beneficial tax scale than those that are not, and several tax reductions are contemplated.

How to save on inheritance tax on real estate

When a person is about to pass away, it is best to use the liquidity of his or her treasury to meet these expenses. In other words, he/she could plan the inheritance and its costs in such a way that he/she could make a partial self-settlement. This is a legal measure as long as it is justified.

On the other hand, the capital gain of the deceased can also be applied. This consists of the transfer of investments, whether movable or real estate, by the succession of the deceased, which is not taxed in the IRPF of the deceased, whereas it would be if it is transferred during life, in which case it would be taxed in the savings base at a rate ranging from 19% to 28%, depending on the amount.

For example, if a person has shares in an investment fund and sells it, he/she would have to pay the corresponding part in personal income tax. With capital gains on death, the heirs do not have to pay income tax on the gains, but will be taxed on the total amount inherited – not the gain – and this will be included in the inheritance or gift tax,

In conclusion, we hope that with this information, it has become clearer to you what taxation on the inheritance of real estate consists of. In case of doubts, it is best to contact a lawyer specialised in this subject, to find the best option for each case. About this issue, please contact our tax advisors in Barcelona.

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