If you have received a property as an inheritance or a donation, you must not forget that you are obliged to pay two taxes: the inheritance and gift tax and the municipal capital gains tax (tax on the increase in the value of urban land)
In this article we will focus on the capital gains tax on inheritances and we will explain what you need to consider if you are receiving an inheritance or donation.
Capital gains on inheritances: What is it and who pays it?
Capital gains tax is a tax that must be paid when an urban property is transferred (flat, house, urban land, garages, premises, etc.) -whether it is sold, donated or inherited- and it is the heir who must bear the costs of this tax, unless the property is located on rural land.
Capital gains tax on inheritances is only payable if the transfer of the urban property has resulted in a capital gain, i.e. its value has increased. Likewise, capital gains tax is also not payable if the inheritance is rural land, a vehicle or cash.
Another aspect to bear in mind is that if the inherited urban property is sold, the municipal capital gains tax must be paid twice: once as heir and once as seller. Under the previous legislation, if the sale took place within a year of inheriting the urban property, no capital gains tax was payable on the sale. However, under the new regulation, following the Ruling of the Constitutional Court of 26 October 2021 which declared the system for calculating capital gains tax unconstitutional, capital gains generated in less than one year will be taxed.
Capital gains in inheritances with several heirs
If there are several heirs, the payment of the capital gains tax can be made by a single person for the total amount of the tax to be paid or by each heir individually and for the percentage that he or she has been awarded in this case by the inheritance.
How to calculate capital gains on inheritances?
This tax is levied on the increase in the value of the land on which the urban property is located, from the time of its first purchase to the current time of transfer.
With the entry into force of the Royal Decree-Law 26/2021 of 8 NovemberIn addition, a new system for calculating the municipal capital gains tax is established: one "objective" and the other "real", with the taxpayer being able to apply whichever is more beneficial.
For the calculation of the "target" method the following shall be taken into account:
- The cadastral value of the land, which can be found in the IBI (Impuesto sobre Bienes Inmuebles), which is paid annually at the Town Hall.
- A coefficient fixed by the local councils and applied to the cadastral value of the land, which varies according to the number of years the property has been owned, thus obtaining the taxable base.
- A tax rate set by the local councils to be applied to the taxable base to obtain the tax payable.
For the calculation of the "real" method, the following shall be taken into account:
- The difference between the acquisition value of the property and its transfer value (value assigned to the property for inheritance and gift tax purposes).
- The proportion that the land has in the cadastral value will be applied to this difference. For example, if the cadastral value of the land corresponds to 30% of the total cadastral value of the property, this 30% would have to be applied to the difference between the acquisition value and the transfer value to obtain the taxable base.
- Once the taxable base has been obtained, the tax rate set by the City Council will be applied to obtain the tax payable.
In order to know which coefficient to apply to the cadastral value of the land in the "objective" calculation formula, we must take into account the number of years that have elapsed since the testator (deceased person) acquired the property until it is inherited.
In this way, we have to apply a coefficient to the time elapsed which, as we have mentioned, is determined by each local council and, if more than 20 years have elapsed, the amount to be paid will not increase under any circumstances.
The coefficients approved by the local councils may not exceed those indicated below, depending on the number of years that have elapsed since the purchase of the property:
|Less than 1 year||0,14|
|19 years old||0,36|
|Equal to or more than 20 years||0,45|
As for the tax rate applicable to the resulting taxable base, whether by "objective" or "real" calculation, and which is determined by each local council, it may never be higher than 30%.
Example of calculation of capital gains in inheritance in Mijas (Málaga)
How about moving from theory to practice? I'm sure you will understand it better that way.
Let's imagine that Juan's parents bought a property in Mijas in 2012 for 250.000 euros and Juan inherited it in 2021, with a value of 300.000 euros. Furthermore, we know that the cadastral value of the land according to the IBI is 60,000 euros and the total cadastral value of the property is 100,000 euros.
What data do we need?
- Land value (IBI): 60.000€.
- Total value (IBI): €100,000
- Full years elapsed: 9 years
- Applicable coefficient for 9 years: 0.09
- Tax rate in Mijas in 2021: 30% (No rate has yet been set by the local councils, so the maximum rate applies).
Calculating capital gains on inheritances
Objective" calculation method
- Taxable Base: 60.000 € x 0,09 = 5.400 €.
- Tax rate: 30%
To be paid: 5.400€ x 30% = 1.620,00€
Actual calculation method
- Difference between acquisition value (purchase from Juan's parents) and transfer value (inheritance): 50.000 €.
- % of the land value over the total value of the dwelling: 60%
- Taxable Base: 50.000€ x 60% = 30.000€.
- Tax rate: 30%
To be paid: 30.000 € x 30% = 9.000,00 €
Therefore, in this example, Juan could be taxed on the taxable base obtained using the "objective" method (€5,400), instead of that obtained using the "real" calculation method (€30,000), since in the first case, applying the tax rate, he would pay €1,620.00, and in the second case €9,000.00.
Avoiding capital gains tax on inheritances
There are certain circumstances in which the payment of capital gains on inheritances can be exempted. We explain them below:
Firstly, as discussed above, if the property is a rural property.
The second case, also discussed above, takes into account the value of the inherited property: the new regulation (Royal Decree 26/2021 of 8 November) following the latest ruling of the Constitutional Court, recognises the exemption from the tax, for those properties that have lost value since their acquisition.
You must always prove that there has been no increase in the value of the property. We at Ódice Abogados always recommend that you have good legal advice as there is always a presumption that there is an increase in value. Our inheritance lawyers in Malaga will help you to avoid overpaying and at the same time avoid tax problems.