You have probably heard of inheritance tax and wondered what it is. You may be aware that it is a tax that you pay when you receive an inheritance, but how does it work? At Stelae we will answer all your questions.
Definition and concept of inheritance tax
What is inheritance tax? It is a tax that is paid when you receive an inheritance. It is levied on the wealth received, based on its net value, i.e. the value of the asset minus the value of any associated debts.
Inheritance tax in Spain is imposed when there is a transfer of assets and entitlements free of charge. It is applied when a loved one dies and their heirs receive the part of the estate that corresponds to them.
What is Inheritance and Gift Tax? It is so-called by legislation because it also includes the tax that is paid when the transfer of assets takes place inter vivos as a donation.
Who pays inheritance tax?
We have already seen what inheritance tax is, but it is also necessary to know who has to pay it.
Heirs and beneficiaries
According to tax regulations, inheritance tax is personal. In other words, it is paid by the person who receives the inheritance. Consequently, it must be paid by all heirs.
However, the beneficiaries of a deceased person's life insurance will also have to pay the tax.
Exceptions and exemptions
It is not always necessary to pay inheritance tax. It depends on what is established by each autonomous community.
On the one hand, there is usually a minimum amount of inheritance on which it is compulsory to pay tax. Under this figure, the heirs are exempt (although this is not always the case).
On the other hand, there are autonomous communities that have practically eliminated this tax, such as Andalusia, Cantabria, Castilla y León, Extremadura, Madrid and Murcia.
In Catalonia, for example, the tax rate varies from 7% if the inherited estate is worth less than 50,000 euros to 32% if the inherited assets exceed 800,000 euros.
How is inheritance tax calculated?
When calculating inheritance tax, it should be pointed out that it is a progressive tax which means the higher the inheritance, the higher the tax rate. It should also be mentioned that it is direct as it is levied on the taxpayer's assets, not on consumption. On this basis, we will now show how inheritance tax is calculated.
Valuation of assets and property
The first step in calculating inheritance tax is to determine the net value of the estate. This is done by adding the actual value of the assets at the time of acquisition - known as the gross estate - and subtracting any deductible debts and charges.
Fees and applicable rates
The net value of the estate is the taxable amount of the inheritance tax, i.e. the amount on which the tax is levied. So what percentage of the inheritance is taxed?
As mentioned, it is a progressive tax, which means that the percentage will depend on the amount inherited, and will vary in each autonomous community. In addition, it is possible that reductions and allowances may be applied, depending on the regulations of each autonomous community.
It is important to mention that inheritance tax is levied in the Autonomous Community in which the deceased person resided, regardless of where the heirs reside or where the inherited assets are located.
Example of tax calculation
As we know, since inheritance tax is paid on the basis of the net estate, the first step is to calculate the taxable amount.
Let's say that, after subtracting debts and deductible charges, the taxable amount is 120,000 euros. In this case, if we pay this tax in Catalonia, we would have to apply a percentage of 11%, which would give a total of 11,200 euros.
However, as we have already mentioned, each case would need to be studied because, for example, in Catalonia deductions are applied in the case of disability of more than 33% or for descendants under 21 years of age.
Declaration and payment process
Where is inheritance tax paid and what procedures are necessary? We will explain what documentation must be presented and how to do it, as well as the obligatory time limits.
Documentation required
In order to pay inheritance tax, it is necessary to present a tax declaration to the administration (either a public or private deed) detailing the assets and rights that are inherited, as well as their value and any associated debts and charges.
The death certificate and the last will and testament register, as well as an authorised copy of the will, must also be provided.
What other documents may be required?
- A certificate from the insurance company if there is life insurance.
- Proof of all declared assets and debts.
- Proof for obtaining possible deductions.
- Title deeds of the property in the name of the deceased person.
- Identification documents of all the heirs and beneficiaries.
- Certificate from the bank with the transactions carried out in the deceased person's account.
It is fundamental to get good advice on this because the documentation required can be quite daunting in some cases.
Deadlines and tax obligations
It is important to know that inheritance tax is paid before receiving the inherited assets and rights and that you have a maximum period of six months from the date of death of your loved one.
Until payment of the tax is accredited, the change of ownership of the inherited property cannot be made.
Is there a statute of limitations on inheritance tax? Yes, after five years, which eliminates the obligation to pay it. This means that the administration will no longer be able to claim it. However, for this to be the case, there must not have been any intervention on either side.
As you can see, inheritance tax can be an added burden for families when a loved one passes away. That's why having a simple funeral service, like the ones we offer at Stelae, can help to ease costs. Contact us and we will provide you with information on all the options available.
