Have you heard about the inheritance tax law? When a loved one passes away, in addition to unforgettable memories, they also leave us a material legacy that can be life-changing for some.
But, when inheriting property and rights, we also find ourselves with a new obligation that many people are unaware of: this tax must be paid.
What is Inheritance and Gift Tax?
When we talk about Inheritance Tax and Gift Tax we refer to a tax liability that, in Spain, must be paid by any individual who receives property or money in an inheritance or gift:
- On the one hand, the Inheritance Tax is applied when a person dies and leaves goods and rights to his heirs, such as houses, money or shares. For them it means an increase in assets, so they must pay this tax.
- On the other hand, the Donation Tax implies that, if you receive any type of donation (during the lifetime of the person granting it, not after his death), you must also pay for it.
What are the rules and how much do you pay? The amount can vary due to a myriad of factors. How much what you inherit is worth, your relationship or degree of kinship with the deceased and the specific rules of each autonomous community are some of the most relevant.
Fortunately, there are situations in which the tax can be reduced. For example, when we receive the inheritance from our parents or when we inherit the house in which we lived with the deceased person, we usually enjoy bonuses or exemptions. But there are also times when this tax can be expensive!
Payment of inheritance tax after an inheritance, how and when is it made?
If you are the beneficiary of an inheritance, you become the taxpayer of this debt, so you must file the inheritance tax and pay it during the six months following the death of the deceased. However, you can also request an extension of another six months before the end of the initial period.
In turn, the filing of the gift tax and its payment must be made, at the latest, 30 business days after the date on which the gift was made.
How to file the tax? At the office of the Tax Agency of the Autonomous Community where the deceased resided or where his or her assets are located.
To pay the inheritance tax, you will need the following documentation:
- Death certificate.
- Certificate of Last Will and Testament, if available.
- Inventory of inherited assets.
- Documentation proving the value of the assets at the time of death.
What happens if an heir decides not to pay inheritance tax?
As we have been saying, it is mandatory to pay this tax after receiving an inheritance. If an heir decides not to do so, he/she will have to face several legal and financial consequences. He/she might not even get to enjoy what he/she has received!
There are several possibilities:
- If the payment is made after the established deadline without having requested an extension, the heir will have to assume surcharges and, possibly, interest for late payment.
- If you do not pay the debt, you will be incurring in a minor, serious or very serious tax violation, subject to variable penalties.
- If you want to renounce the inheritance, you must do so within a specific period of time and before accepting any benefits from the inheritance. If you do not arrive on time, you will still be responsible for the payment of this tax.
- If it is never paid, the Tax Administration will initiate an enforcement procedure, which may result in the seizure of assets.
In addition, in order to register the inherited property in the corresponding registries -such as the Land Registry in the case of real estate-, it is necessary to present the proof of payment of the inheritance tax. Without this payment, the transfer of ownership cannot be formalized.
What is the applicable regulation in each Autonomous Community?
The general framework of this tax is established by Law 29/1987, of December 18, 1987, on Inheritance and Gift Tax.
But, as we have already mentioned, in our country, the autonomous communities have the power to regulate certain aspects of this tax. For example, deductions, reductions, rates and deadlines, which is why the amount to be paid can be so variable!
Madrid, for example, is one of the communities with the most significant advantages, with a 99% rebate on the tax quota for acquisitions between direct relatives.
How can life insurance help you pay this tax debt?
There is something quite interesting that we have not talked about yet: life insurance can be a very effective tool to manage and plan the payment of inheritance tax or, in other words, to file the self-assessment.
Why? Because they can alleviate the financial burden involved.
When the insured dies, his or her life insurance policy can provide the beneficiaries with immediate liquidity. This money may even be exempt from being included in the inheritance tax base, which means that it would not be considered part of the inheritance.
In this way, it can be used to pay the tax without having to sell other important assets or assets with a high sentimental value.
That is why selecting carefully among the best life insurance policies is essential. To do so, it is best to count on professional help, such as the one we can provide you with at PIB Group Iberia .
As your trusted insurance brokerage, we will guide you through the inheritance tax self-assessment process without any complications,contact us, don’t delay any longer!
