Which taxes apply when you receive an inheritance?

Originally published in April 2020. The temporary deadline extensions introduced during the COVID-19 state of alarm no longer apply and have been left out of this version.

Acquiring assets and rights by inheritance, legacy or any other title of succession is subject to a number of taxes.

1. Inheritance and Gift Tax (ISD)

The main one is Inheritance and Gift Tax (Impuesto sobre Sucesiones y Donaciones, ISD), which is managed by the regions. The return must be filed within SIX MONTHS of the date of death.

A further SIX-MONTH extension may be requested, provided it is applied for within the first five months of the filing period. The extension carries late-payment interest, from the end of the voluntary period until the day the return is filed.

The following are subject to the tax:

• Inheritances and legacies
• Gifts on death
• Succession contracts or agreements
• Payments made by companies and organisations to the relatives of employees who have died, as a gift, provided they are not taxed as insurance or under personal income tax
• Amounts received under life insurance policies, when the policyholder or the deceased insured person is someone other than the beneficiary

The tax has certain reliefs and allowances, which vary according to: the degree of kinship between the heir and the deceased; whether the heir has a disability of 33% or more or is aged 75 or over; whether the assets and rights acquired are linked to the deceased’s business activity; and whether holdings in companies are acquired.

At Arias Advocats we hold the digital certification needed to file our clients’ tax returns electronically, so they do not need to travel.

2. Municipal capital gains tax (plusvalía)

Secondly, the Tax on the Increase in Value of Urban Land (Impuesto sobre el Incremento de Valor de los Terrenos de Naturaleza Urbana, IIVTNU), known as the plusvalía municipal, is payable to the local council. It must be paid within SIX MONTHS of the death, extendable to ONE YEAR provided the extension is requested within the first six months.

The tax applies to the acquisition of a right in rem over urban property (not rural land) whose land has increased in value.

It also offers reliefs and allowances when the property acquired was the deceased’s main residence, or had been at any time during the five years before their death; and when the property was premises where the deceased personally, habitually and directly carried on a business or professional activity, provided the heir keeps the property and carries on a business in the same premises personally, habitually and directly for the five years following the death.