It is possible to ensure that an inheritance does not become a burden on the family by planning for estate taxes
At Carrillo Asesores, we have developed a table to simulate inheritance tax calculations so that an heir can determine as precisely as possible the tax they would have to pay, taking into account four scenarios based on the date of death.
- Death Prior to the Regulatory Reform of August 8, 2015
- Deaths occurring from August 8, 2015, through December 31, 2016.
- Deaths on or after January 1, 2017.
- Deaths on or after January 1, 2018
For this reason, and by way of example—based on the tables we’ll look at later—we would have the following for:
Deaths prior to August 8, 2015:
If we inherit €500,000, the tax is about €112,000, and if we inherit €1,000,000, the tax is about €286,000.
Deaths from August 8, 2015, through December 31, 2016:
If we inherit €500,000, the tax is about €56,000, and if we inherit €1,000,000, the tax is about €143,000.
Deaths from 2017 onward.
If we inherit €500,000, the tax is about €45,000, and if we inherit €1,000,000, the tax is about €114,500.
Deaths on or after January 1, 2018.
If we inherit €500,000, the tax is about €45,000, and if we inherit €1,000,000, the tax is about €1,077.
These differences in taxation are due to the tax relief measures established by the Murcian government; currently, in 2018, the exemption for Groups I and II of heirs (the most common) is 99% of the inheritance tax liability. However, it is important to note that even if the tax is paid in 2018, if the taxpayer died in 2017, the exemption will be only 60%.
Inheritance tax is a tax levied on a sliding scale; thus, the larger the estate, the higher the tax, which can result in staggering amounts. I say this because another characteristic of this tax is that the Region of Murcia has virtually eliminated all the tax breaks that used to exist, and assets are “valued at market value”—where the Region of Murcia assessed real estate (before the real estate boom) at an extremely high value, even though the actual value is now much lower.
In addition, from the taxable estate—which is the amount on which the tax is levied—a portion may be deducted to cover funeral and burial expenses, as well as the deceased’s debts at the time of death.
Virtually the only deduction or tax credit available under this Inheritance Tax is the one related to inheriting companies or businesses (for the purpose of ensuring continuity for the children or heirs) and the one related to the decedent’s primary residence, all of which are subject to very specific conditions and requirements.
That is why it is important to plan for inheritance tax, since being classified as a “Family Business” can result in a 99% tax break, but it is essential to meet each and every requirement. Often, business owners believe that simply because they and their child are involved, the business is already a “family business,” but this is not the case—and they may lose the only tax advantage available for this tax.
Every case is unique, and each individual’s personal situation—or that of each heir—must be taken into account when it comes to estate tax. This requires a fairly complex preliminary analysis, but most importantly, doing nothing could result in the loss of your assets.
For greater clarity, we will present some easy-to-understand tables showing examples of inheritance tax for heirs who are children, descendants, or adopted children, as well as ascendants, who are over 21 years of age, based on the value of the inheritance.
Hypothetical scenario of inheritance per child with the child’s pre-existing estate valued at less than 402,678.11, including household goods at 3% as required by law and reductions based on kinship applied.
Here, I’ll share a success story about an entrepreneur who came to our office for advice.
If you would like to learn more about Decree-Law 1/2015 of the Region of Murcia and its regulatory changes, click here.
And if you’d like to read about the latest tax credit in the Region of Murcia, click here.
And it is important for you to know the requirements for the inheritance of a family business to be exempt from inheritance tax.
And if you have any questions or comments, I’d appreciate it if you could leave us a comment.
