Inheritance tax: How much do I have to pay for inheriting?
The Inheritance Tax (ISD) is a tax paid by the person who receives assets and rights through inheritance, legacy or any other succession title.
At our notary office in the centre of Barcelona, we continuously receive questions about how much one has to pay for receiving an inheritance, so we have decided to prepare this article to help understand the basics of this tax. This article is updated as of early December 2022.
As an introduction, we can state that, although people usually think it is a tax where you pay a lot for inheriting, the truth is that, compared to other taxes, it is one of the few taxes where it is normal to pay a low percentage on what is received. This is because there are many rules that allow the application of numerous reductions and allowances which, if applied correctly, will greatly reduce the amount of money that inheritors have to pay, it is common not to have to pay anything or almost nothing for inheriting, especially if the inheritance is from parents to children. Therefore, it is very important to calculate the Inheritance Tax accurately.
What is the regulation that governs the Inheritance Tax (ISD)?
The inheritance tax is a state tax, but with regulation delegated to the Autonomous Communities. Therefore, the state law must always be considered and, in addition, the law of the Autonomous Community where the person who dies and leaves an inheritance lived. Furthermore, it is most common for each Autonomous Community to have a practical guide to help calculate the Inheritance Tax.
The operation of the inheritance tax is the same in all the Autonomous Communities, but sometimes there are changes in the tax rate (the percentage of tax to be paid on the inheritance) or in some reductions or allowances.
Therefore, the state law (the Law 29/1987, of 18 December, on Inheritance and Gift Tax) and the regulation of an Autonomous Community must be taken into account. As I practise my profession in Catalonia, and most of my clients have questions about Catalan inheritances, from now on I will address the Catalan law (Law 19/2010, of 7 June, regulating the inheritance and gift tax). However, to calculate the tax in another Community, it would suffice to check whether the tax rate or the reduction are the same in the law of the Autonomous Community where the tax must be calculated. The operational framework is usually quite similar in all the Communities.
When must ISD (Inheritance Tax) be paid?
The ISD must be settled and paid within 6 months from the death of the person leaving an inheritance. Therefore, it is important not to leave an inheritance unresolved for a long time, as if the obligation to settle is not fulfilled (settling can be understood as informing the Tax Agency and paying the Tax) many tax reliefs can be lost and the amount paid can increase significantly.
It should be noted that it is possible to request instalments or deferrals in the payment of this tax by meeting certain requirements such as, for example, requesting it within five months from the date of death. This is usually done when an inheritance includes many properties and very little money in bank accounts. As this is not the most typical case and there are many issues to address regarding this tax, we will not dwell further on this point and will only note that this is a possibility.
When does the ISD prescribe?
The inheritance tax prescribes four years after the deadline for voluntary submission, that is, four and a half years from the date of the deceased's death. In this way, if no action has been taken by the tax administration after this period, it can no longer review or issue a supplementary assessment.
Which forms must be completed at the Tax Office?
Two forms must be submitted to the Tax Office:
Form 660 (inheritance declaration): includes a list of the assets and rights of the deceased (the person who has died), which constitute the estate to be distributed among the interested parties in the inheritance. One Form 660 must be completed for each estate to be settled.
Form 650 (inheritance self-assessment): identifies a single taxpayer and calculates the amount payable according to the assets and rights acquired. As many Form 650s must be submitted as there are interested parties involved in an inheritance.
Along with this Form 650, the tax payment will be made by each taxpayer, except in cases of deferral or instalment payment.
How to calculate the Inheritance Tax?
To calculate the ISD, a series of calculations or operations must be carried out that always follow the same order and are the same operations in all the Autonomous Communities. The taxable base usually has the same calculation in all the Autonomous Communities, and it is from the net taxable base that modifications between Autonomous Communities begin. These modifications between Autonomous Communities are not usually in the scheme or concept but usually only modify percentages of the tax rate or especially of the different reductions.
If you are interested in the calculation of the inheritance tax, stay tuned, as we will address this topic in one of the following blog articles.
We hope this article has been helpful to you. From our notary office, we offer services to process inheritances. Therefore, on the blog, we have many other writings prepared by our Notaries in Barcelona and related topics that may be of your interest:
Please remember that if you need assistance with this or any other matter, you can visit our notary office in Barcelona or contact us through various channels such as our contact form and the e-mail bcn@jlanotarios.com.
