Sometimes, we may find that when planning an Inheritance, we want to name a person with whom there is no family relationship, or a distant family relationship, as the heir. The tax regulations for the Inheritance Tax are established so that in the case of Inheritance to close relatives (especially children and spouses, although to a lesser extent also siblings) they have a lower tax burden than if it is to distant relatives or friends.
In this sense, Catalan regulations, in particular the Civil Code of Catalonia, in its articles 240 et seq., regulate the figure of “cohabitation relationships of mutual aid” (“relación convivencial de ayuda mutua”), which is characterized by the following aspects:
- It is established between two or more people (if they are not relatives, a maximum of four people) who live in the same residence and share, without compensation and with a desire to remain and mutual help, common expenses or domestic work, or both.
- It can be constituted by people of legal age united by ties of kinship in a collateral line without limit of degree and those who have relationships of simple friendship or companionship, as long as they are not married or a de facto couple.
- They are established by means of a public deed, signed before a Notary at least two years before the death of the deceased or by means of a certificate of notoriety (“acta de notoriedad”) of cohabitation for the course of 2 years of cohabitation (by showing common registration (“empadronamiento”), the last Personal Income Tax Declaration (“IRPF) or the Census of Taxpayers, among others, these being evaluated by the managing bodies of the Tax Agency of Catalonia as to whether they represent sufficient evidence).
The tax implications in the Inheritance Tax if such cohabitation relationship can be proved are relevant.
The main consequence is the assimilation of Relationship Group II (in its “Rest of descendants” category) instead of being of Relationship Group IV. This implies the following:
- Reduction due to kinship (“Reducción por Parentesco”): There would be a reduction of €50,000 on the tax base. If it was Group IV, there would be no reduction for this concept.
- Reduction due to disability or age over 75 years of the assignee: They are incompatible with each other. The reduction for disability depends on the degree of disability of the beneficiary, while the reduction for age over 75 years is up to €275,000.
- Reduction for the deceased’s habitual residence (“Reducción por Vivienda habitual del causante”): There would be a reduction in the tax base of 95% of the value of the deceased’s main residence, with a limit of €500,000.
- Multiplier coefficient: The coefficient to be applied to the quota would be between 1 and 1.2 (depending on the pre-existing wealth of the successor in title) in the case of being able to demonstrate a mutual aid cohabitation relationship; On the other hand, it would be 2.0 if it could not be demonstrated and it was Group IV.
Consequently, if a succession is planned in which the beneficiaries are distant relatives or friends with whom there is a relationship of coexistence and mutual assistance, it is highly recommended from a tax point of view that this relationship be made official.
To avoid problems with the Tax Authorities, the safest thing to do is to sign a public deed before a Notary as soon as possible (it must be signed at least two years before death), or else make sure that this coexistence can be demonstrated later by means of a notoriety certificate (having the same registration –“empadronamiento”- , declaring the main residence at the same address in the Income Tax return –“IRPF”-, etc.).
If you have any questions about this topic or others of a tax, legal or accounting nature, do not hesitate to contact our tax advisors in Barcelona.
