Carlos Baos dicusses inheritance tax in Spain

Inheritance Tax is a frequent source of concern for both parents and their children. Not in vain, Spain is one of the countries with a higher Inheritance Tax rate in Europe. One of the questions we most frequently receive in relation to this subject is: Can I donate some assets to my children, during my lifetime, so that when I pass away, they pay less IHT?

In today’s article, we try to respond to this question by analysing two legal rules/limitations that are not very well known, but that have paramount importance when it comes to designing a correct tax strategy to pay less Inheritance or Git Tax: The accumulation of gifts between them, and the accumulation of donations to the inheritance.

Accumulation of gifts. Valencian Regional Law and State Law.

All gifts made between two individuals (e.g., from a mother to her child) that take place within a certain time frame will be considered, for tax purposes, as a single donation. This time limit is different depending on the applicable law. When the Valencian Regional Law 13/1997 is applicable, gifts must be separated from one another for at least 5 years. If the applicable law is State Law 29/1987, the timespan is reduced to 3 years.

Accumulation/addition of gifts to the inheritance. Valencian and State Law.

The rule for the addition of gifts to the inheritance follows a similar logic. After a person passes away, when their heirs settle their Inheritance Tax, it is very important to check whether the deceased had made a gift to any of them, while he/she was alive, in the previous 4 years. If so, the value of the asset gifted must be considered when calculating the ITH, as it will “accumulate” to the value of the assets that conform the deceased’s estate.

In this case, the timeframe of the Valencian Regional Law and the State Law is the same: 4 years.

When a donation accumulates to the inheritance… is it being taxed twice?

No. In cases where an accumulation occurs, the taxpayer is not paying the tax authority twice (first in the gift, and then in the inheritance). Both in the accumulation of donations between each other and to the inheritance, the amount to pay to the tax authorities is calculated through the rules foreseen in the State Law and the implementing Regulation (consisting of the application of an average rate of taxation).

At White Baos Lawyers we are experts in Gift and Inheritance tax, and we can help you to plan your succession in Spain, with the purpose of minimising the taxes to be paid. If you have any questions or doubts, please do not hesitate to contact us. We will study your case and offer you expert legal advice.

You may be interested in the following services and articles:

Acceptance of the inheritance by the heir in Spain. Consequences. Legal advice.

Inheritance Tax. Interests. Penalties. Payment of the tax after the deadline. Legal advice.

How can I donate some of my Spanish assets to my family as gifts to save Spanish Inheritance Tax?

Carlos Baos (Lawyer)

White & Baos.

Tel: +34 966 426 185

Email: info@white-baos.com

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