Due to a lack of understanding, many people shudder at the mere mention of the word "taxes." It's normal to pay taxes on almost everything: food, housing, leisure, transportation, and so on. So it's no surprise that we also have to pay when we inherit something. This tax is called inheritance tax.
In this article we will explain what this type of tax is, how to calculate it and who should pay it. So if you want to know in advance how much you have to pay or just want to know more about the subject, I recommend that you keep reading.
What tax is paid for inheritance?
When a relative dies and/or we are named in someone's will, we inherit all or part of their estate, which then becomes part of our own. This new inheritance is not tax-free. When we receive it, we have to pay inheritance tax. The same applies to donations: if we receive an inheritance or a donation, we have to pay a tax. The regional governments are responsible for managing this type of tax. Therefore, receiving an inheritance in Andalusia, Asturias, or Madrid has quite different financial consequences for the beneficiaries or heirs.
As for Inheritance and Gift Tax, it is a direct tax. In other words, it is levied on people's income and assets. Furthermore, it is progressive, meaning that the tax rate increases as the taxable base increases.
How is inheritance tax calculated?
It's important to know that inheritance tax must be paid within six months of the deceased's death. Calculating this tax involves several steps. Let's look at them step by step:
Household goods (real estate) + Assets and rights = Gross estate
Gross estate - (Charges + Debts + Deductible expenses) = Net estate
Net inheritance / Number of heirs according to the regulations or the will = Individual inheritance portion
Individual inheritance portion + Life insurance (if any) = Taxable income
Tax base - Reductions = Tax base
Taxable base + Percentage or tax rate = Full fee
Full quota + Multiplier coefficient = Tax quota
Tax rate + Bonuses and deductions = Settlement or total to be paid
These calculations may seem very complicated at first glance. To make things easier, we'll explain what some of these concepts are and how to find them out. However, keep in mind that many of these values ​​will depend on the Autonomous Community you're in, as they are the ones that manage Inheritance and Gift Tax.
Taxable base, reductions, full quota, percentages, tax quota and multiplying coefficients
Because our assets increase after receiving an inheritance, we have to pay taxes. Therefore, we must first calculate the taxable base. This is obtained by taking the net value of the assets and rights that make up the gross estate. From this amount, we can subtract reductions that vary depending on the Autonomous Community. These reductions may be based on the nature of the assets, disability, or kinship, among other factors, and result in the final taxable amount.
Once we have the taxable base, it's time to apply the dreaded value: the tax percentage. Like the reductions, this percentage also depends on the Autonomous Community. However, there is a national regulation that establishes a rate between 7,65% and 34%, depending on the total taxable base. In principle, the higher the value of the inheritance, the more you have to pay. Once the corresponding inheritance tax percentage has been applied, you obtain the total amount due.
To determine the tax liability, these calculations are not enough. The multiplier coefficients must also be added to the total tax liability. These coefficients vary depending on the heir's pre-existing assets and the kinship group to which both the deceased and the heir belong. Adding the two together gives the multiplier coefficient. There are a total of four kinship groups:
- I: Adopted and descendants under 21 years of age.
- II: Adopted and descendants of 21 years or more, ascendants, adopters and spouses.
- III: Second degree collaterals (siblings) and third degree (uncles, nephews), and ascendants and descendants by affinity.
- IV: Fourth degree collaterals (cousins), more distant and strange degrees.
Bonuses, deductions and the total to pay
Finally, both tax credits and deductions must be applied to the tax liability. Again, these depend on the Autonomous Communities. In the Community of Madrid, for example, the tax credit is 99% for ascendants, spouses, and descendants. Therefore, inheritances in Madrid are much more advantageous.
Who has to pay inheritance tax?
In principle, the person who always has to pay inheritance tax is the one who receives the estate. Therefore, it works out like this:
- Succession: The successors, that is, the legatees, heirs, etc. pay the tax.
- Donations: The donee, that is, the person who receives the donation, pays the tax.
- Life insurances: The beneficiary pays the tax.
If the beneficiary of an inheritance is a legal entity, thereby increasing its own assets, it is subject to corporate income tax, not inheritance tax. This is because legal entities are groups of individuals who are liable to third parties with their own assets, not the assets of their members.
Regarding the payment deadline, this varies depending on the situation. In the case of inheritances, the heirs have a total of six months from the date of death. However, when it comes to donations, the filing deadline is 30 business days from the date the donation was made.
Now we only have to investigate what the regulations are in our Autonomous Community to be able to calculate how much we will have to pay for our inheritance. If we are lucky we live in one where we only have to pay a symbolic amount, and if we are unlucky we must release a significant amount of money.