On 10 July, the Spanish Official State Gazette published Law 11/2021 on measures to prevent and combat tax fraud, in compliance with European directives. As we saw in our previous article, this regulation contemplates tax changes that especially affect estate taxes for 2022, but it may also significantly affect heirs who are beneficiaries of inheritances during their lifetime, and not only because of the change in the taxable base of inheritance and gift taxes.
Discouraging “fiscal euthanasia”
Inheritance during lifetime in the Balearic Islands, Galicia and Catalonia is a specific form of inheritance under the civil law of these regions. A sort of “fiscal euthanasia”, which allows for “dying for tax purposes” in order to pass on assets to heirs during lifetime at a very low tax rate.
“Fiscal euthanasia” will die with the government’s anti-fraud law. The Executive is preparing a fiscal punishment to discourage inheritance pacts and wants anyone who has acquired an asset by donation during their lifetime, if they sell it before the death of the donor, to pay the same IRPF as if it had been sold by the donor and to pay tax on the profit generated since the purchase of the asset.
The new law on measures to prevent and combat tax fraud focuses on these inheritance agreements due to their low taxation and imposes an increase in Personal Income Tax (IRPF) in article 36.
Since 2016, this type of inheritance has skyrocketed and this has raised suspicions in the Treasury. The Government understands that parents are using this formula to give inheritances to their children so that they can then sell them without generating capital gains.
The new law has heirs in the process on tenterhooks for fear of retroactivity, as if it is approved before 31 December they will still have to pay income tax.
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