How to formalise an inheritance before a Notary and some considerations to pay less Inheritance Tax (ISD)
At JLA Notarios, one of the services we provide most is the processing of notarial inheritances. Clients who ask us to resolve a succession or inheritance due to the death of a relative usually have the same doubts and concerns. We have written this post to answer the most frequent questions and clarify a series of issues that provide security and confidence to those who need any information about an inheritance. Additionally, you will find some considerations to pay less Inheritance Tax.
Inheritances are regulated by Succession Law, depending on the case, by the common Civil Code, which applies in most of the Spanish territory, or by one of the regional Civil Codes, such as that of Catalonia. Furthermore, they must comply with state and regional tax regulations, especially the Inheritance Tax (ISD), but also the income tax (IRPF) and municipal capital gains tax. Therefore, there are several regulations to consider before signing an inheritance and it is important to have good advice.
How to process an inheritance?
To process an inheritance at a notary it is necessary to obtain the following documents:
- Death certificate of the deceased.
- Certificate from the General Registry of Last Wills.
- Life insurance certificate.
- Succession title, which can be the will or the declaration of heirs
- List of the deceased's assets. In this case, these can be the deeds or simple notes of the properties that the deceased owned at the time of death, bank certificates showing accounts, funds, pension plans, the title and circulation permit of vehicles, etc.
However, of the administrative documents, the death certificate of the deceased person is the only document that is always essential. The other documents, both the succession title and the certificate from the General Registry of Last Will Acts and the insurance certificate can be obtained directly by the notary, although if the client presents them, the processing of an inheritance will be expedited. Logically, the client must present the documents proving the deceased's assets, since it is impossible for the notary to know the existing estate.
The best notaries in Barcelona or elsewhere can take care of gathering all the other necessary documents for you. At JLA Notarios we can handle all these procedures, only requiring clients to come and sign at our Notary Office on the Diagonal in Barcelona when the inheritance deed is ready.
At the signing of the inheritance at the notary, all interested parties must attend, which vary depending on the case. Usually, the heirs (who receive the entire inheritance in equal parts), the legatees (who receive a specific item), the legitimaries (who receive the legitimate portion) and the usufructuaries (who receive the usufruct) attend. This is the same in all inheritances, including cases of international succession. It is common that only the children have to come to inherit from their parents, facilitating the processing of the inheritance.
If you want to know more you can consult the following articles:
Inheritance Taxes: how not to overpay
It is often asked what percentage must be paid to the tax authorities for an inheritance? From the perspective of Tax Law, inheritances are complex because several taxes must be taken into account:
Inheritance tax (ISD)
It is important to calculate this tax correctly because it has some complexity and may involve paying a large amount of money.
Through this tax, a percentage of the inheritance must be paid depending on the relationship of the heir to the deceased and other matters (the closer the heir is to the deceased, the less is paid; those who pay the least are the children and the spouse of the deceased). Tax allowances that reduce the amount to be paid must also be applied (for example, for inheriting a main residence, for disability, or for being a child of the deceased). All these matters must be examined in detail before and after signing the inheritance.
It is important to know that the inheritance tax must be paid within 6 months from the date of death of the deceased, although a 6-month extension can be requested, provided that the request is made within the first 5 months from the date of death.
Another important point when signing an inheritance, which can lead to significant future savings, is the valuation of the properties. Properties, according to current regulations, are valued based on the reference value set by the land registry, or if there is none, according to the previous calculation rules established by the Tax Agency. The Tax Agency determines the minimum value of a property. However, respecting this limit, you can set a higher value, which would imply paying a higher amount of inheritance tax.
Why would I give a higher value to a property if I am going to pay more inheritance tax? If you want to sell a property from the inheritance, you should consider whether it is convenient to increase the value of the property to bring it closer to the market value, which will be the value at which you will sell it. Why? Because when you sell the house you will have to pay income tax on the difference between the acquisition value (inheritance value) and the sale value. The greater the difference, the higher the taxes paid. Specifically, between 19% and 26%. Perhaps paying a little more in inheritance tax, whose rate can be low, implies a very considerable saving in the future.
Income tax (IRPF):
Regarding Income Tax, various considerations must be taken into account:
The deceased's IRPF.
When a person dies, their heirs must submit the income tax return for that person, for the period from 1 January until the date of their death. The heirs must ensure that the deceased was obliged to file the return, as otherwise it will not be necessary to do so, unless it results in a refund. In the latter case, the heirs, in addition to submitting the return, must subsequently request the refund of the amounts, whose beneficiaries will be the heirs themselves. This is stated by the Tax Agency itself.
The IRPF of the heirs.
The heirs must file the income tax return, but the capital gain obtained through inheritance does not generate income tax. This is what has become known as the "dead man's capital gain". The heirs must declare in the income tax return:
- Pension plans, as they are not subject to inheritance tax, but are subject to income tax.
- Declare the properties received by inheritance. This simply means reporting it in the income tax return, although, as mentioned, it does not generate income tax liability.
- The economic returns from real estate, profits from shares, or any other benefit produced by the inherited assets after the death of the deceased.
- The heirs must check whether they are obliged to file (and if applicable pay) Wealth Tax with the acquired assets, since these assets are their property as of 31 December and must therefore be taken into account for the purposes of the said tax.
Municipal capital gains tax
This tax is paid to the Town Councils and varies in each Town Council. Technical issues must be taken into account, such as the fact that there are two possible ways to calculate it, both of which are correct, but one may be cheaper than the other; and operational issues, such as the system being different in each Town Council and it being important to know whether the use of points or commas is correct for the system depending on whether the tax calculation is carried out properly.
We hope this article on how to process an inheritance and save on taxes has been helpful to you. From our notary office in Barcelona we can assist you if you need more information. Don’t hesitate to come by!
You can also contact us via our email bcn@jlanotarios.com or through our website by filling out the contact form.
