Spanish inheritance puzzle pieces with right hand breaking the line

Resignation of a Spanish inheritance

In many cases, the heirs simply cannot afford the taxes and expenses that they must pay when receiving property as inheritance and decide to give up their Spanish inheritance. However, this option is also subject to tax … and it may even be a bad decision fiscally.

What solution is there then?

In the blog we discovered some keys to keep in mind to pay less taxes in the case of a resignation of this type.

1. Be careful with the type of resignation

The first factor to consider is the type of resignation that is going to be carried out. There are two possibilities: the pure and simple resignation, and the resignation made in favor of a third party; the first option is more advantageous.

The main difference between the two options is that, in the case of the outright option, “it is understood that the renouncer never acquired the inheritance, and therefore only the beneficiary of said resignation will be taxed, that is, the one who ends up acquiring the assets. Therefore, the renouncer is freed from paying taxes, “explains the office. In the second case, it is considered “that the renouncer has acquired the Spanish inheritance, and then has transferred it to the beneficiary that he has designated. Therefore, when formalizing this resignation, both the renouncer and the beneficiary will be taxed,” he adds.

2. What taxes does the waiver beneficiary pay?

The beneficiary always pays taxes, both in the case of a pure and simple resignation and in a resignation in favor of a third party, although there are differences in both cases.

In the first, the tax figure is the Inheritance Tax, since the beneficiary directly inherits the assets. The date to take into account is the death of the deceased.

In the case of the resignation in favor of a third party, there are two assumptions: if the assignment has been free, Donations Tax is paid, while, if the resignation is in exchange for price, what is paid is the Transmission Tax Patrimonial (ITP).

3. What taxes must the renouncer pay?

In this case, he will only have to pay taxes if a resignation is formalized in favor of a third party, and in the worst case we are talking about Successions, personal income tax and the famous municipal capital gain. In addition, he must include the assets in his Estate Tax. Let’s see what each payment is based on:

To begin with, the Treasury understands that the renouncer has acquired the inheritance, using the death of the deceased as a reference date, and that it has subsequently been transferred to a third party (the beneficiary). Therefore, and as a consequence of having acquired the inheritance, he must pay the Inheritance Tax, a tax that depends on the autonomous communities.

To this is added the personal income tax, since, with the transfer of the inheritance, you will have obtained a capital gain or loss. Hence, he must pay his personal income tax. In the hypothetical case that the asset transferred is urban land, one more tax should be added: the municipal capital gain, but as long as there has been an increase in value with respect to the time of acquisition. Remember that sales that generate losses are not subject to tax.

Finally, the renouncer must pay the Wealth Tax for the years in which he has been the owner of the assets, from the death of the deceased to the formalization of the resignation in favor of a third party. This tax may be exempt or more or less high depending on the amount inherited and the corresponding autonomy. In many regions the exempt minimum is 700,000 euros, although in others the amount drops to 400,000 euros.

4. What if the resignation has expired

The waivers of inheritances have a trick and that is that the treasury does not exempt in any case from the payment of taxes … Not even when it has prescribed. Thus, you will always have to pay the Inheritance and Gift Tax.

The reason? According to article 28.3 of the Tax Law, “the resignation will be considered a donation for tax purposes. Therefore, it is evident that the beneficiary of the resignation (both pure or simple and in favor of a third party), will be taxed in the Donations Tax”, argues the lawyer, who adds that “it could be thought that this consideration as a donation of the waiver of the prescribed inheritance implies understanding that the renouncer previously acquired the inheritance, and has transferred it. And then he should pay taxes for said hereditary acquisition and for the subsequent transfer, but it’s not like that”.

To clear up doubts, it is enough to remember that the special rule of article 28.3 of the law is a legal fiction. “With this rule it is pretended that the beneficiary receives the hereditary portion by donation from the renouncer. But this is only a fiction, and therefore, it cannot be interpreted as an effect of said rule that, in any case, the one who renounced the inheritance, It was previously acquired, neither from the civil point of view, nor from the fiscal point of view.

Therefore, from the office they clarify that it is necessary to differentiate the type of resignation in question. As we saw a few lines above, in pure and simple the renouncer must not pay this tax, nor reflect it in their personal income tax or equity (in the exercises that have not prescribed), nor pay in any case the municipal capital gain. But if the waiver of the prescribed inheritance is for the benefit of a third party, the renouncer will not pay Successions and Donations, although they will not be exempt from paying personal income tax, the Estate Tax and paying the municipal capital gain, if applicable. And, as the law firm concludes, “in these cases it is considered that the renouncer acquired the assets from the moment of death of the deceased, and then has transferred them to the beneficiary.”