What do you think of the recently published bill introduced to Les Corts by the new Generalitat Government, which includes the Inheritance and Gift Tax bonus?
The PP, and especially the new president Carlos Mazón, made a personal commitment to subsidize the ISD, and this was one of the issues in which he showed the greatest interest in fulfilling. We now have the bill being processed, which clarifies two important issues: It will be applied retroactively from May 28 (the election date), and The bonus will be valid for both inheritances and donations. (This was something that wasn’t clear during the campaign, because they always talked about the “Death Tax”).
What news does it collect?
To fully understand the new developments, it is worth noting that (in short) the tax settlement scheme starts from the sum of the value of donated or inherited assets, from which some deductions due to kinship are subtracted from the base in question, the rate being: The tax applied according to the tax rate, resulting in a fee (to be paid amount) and some bonuses may be applied to this fee. First of all, The project improves the kinship discounts appliedremoving penalties for prior assets and including both spousal and grandparent-grandchild donations.
Secondly, and this is truly the star offer, there is a bonus of 99% of the entry fee. And this applies to descendants, descendants, spouses and, to a certain extent, people with disabilities.
Do you think there will be an avalanche of donations as a result of the law?
This is really important Distinguishing between donation and inheritanceBecause although the Autonomous Law treats them equally, their effects on other taxes are not the same. Inheritances are now greatly benefited as the inheritor will not have to sell some of the assets received to pay the Tax or, as is often the case, give up the inheritance because he cannot pay it. What was purchased was mostly real estate.
However, you should be very careful when donating because the donor may have to pay a significant part of personal income tax. We have received many questions regarding this issue, fearing the financial cost of donation.
What exactly do you mean? Does the donor pay taxes?
That’s it. There is no problem if it is donated money. It will be sufficient for the donation to be made in a public title deed. The donor will not incur any tax costs. However, if what is donated is real estate, things change. Let’s say that 10 years ago I bought a property for 200,000 Euros that I wanted to donate to my children, and its value is now 400,000 Euros. If I sold it, the AEAT would deduct the capital gain from my personal income tax return. If I decide to give it away instead of selling it, AEAT thinks that’s great but refuses to give away its share and forces me to pay tax.
In this way, the person donating the property not only loses the property, but also has to pay AEAT as if he had sold it. Many people are unaware of this situation, and when we told him he was shocked, the donation is a change of property, and it is precisely changes of property that are taxed in personal income tax. This is not the case in the case of inheritance. The deceased has enough money to die without being said to have made a capital gain and without being charged for it. Still, it’s better not to give any ideas.
Is the same situation true for family businesses?
Not by chance. But, Family businesses have their own complex problems. The donation/inheritance of family businesses is conditioned not only by tax issues, but also by crucial decisions aimed at generational transition and the survival of the company. From a financial perspective, it is true that there are not one but two exemptions (a 99% regional and a 95% state exemption) that are subject to a number of requirements. And now they will be improved in the part about full compliance with the requirements in question (I do not list them because there are a lot of them, but they imply, for example, preservation of shares for a certain period of time).
But in order to avoid having to pay personal income tax on donations, as on real estate, we will have to continue to comply with previously existing requirements. It is therefore very important to seek detailed advice before making any such decisions. Additionally, unlike inheritance, when shares in the family business are donated, the person who receives them is responsible for the donor’s purchase cost. This could mean a huge tax difference between receiving by inheritance and receiving by donation in the event of a possible future sale. Here too, holding-type structures, where companies with the potential to be sold are at the bottom, play a very important role.
There is also: the possibility of donating only bare propertyreserves the usufruct and political rights of the shares. The truth is, in everything family business related, the options are countless and their outcomes are different in each case. Each often requires a specific solution depending on the type of company and the people involved in it.