Donation or inheritance between siblings: what taxes are they subject to?

Donation or inheritance between siblings: what taxes are they subject to?

Transferring real estate to a brother is possible. Either by donation or inheritance between siblings.

If you are wondering which option will bring you greater tax advantages, from Sky Marketing we explain both options.

Donation between siblings

It is an act of transmission between the living. This figure establishes the transfer of a property free of charge between the donor, who assigns the title to the donee, who is the one who accepts it. The donation, to be valid, must be granted by means of a public document and before a notary public.

The acquisition of goods by donation entails the obligation for the donee to pay the inheritance and donation tax (ISD), in the form of donation.

The inheritance between siblings   

It is an act of death. In cases of inheritance between siblings, it is important to state the will of the deceased in a public document before a notary. Also, in this case, you must settle the IDS in the inheritance model.

Both in the donation or inheritance between siblings, the beneficiary will have to face the municipal capital gain. Like the IDS, the municipal capital gain is assigned to the Autonomous Communities. In the donation, the donor must pay income tax.

Do the tax benefits of donation or inheritance change in the Autonomous Communities?

Yes. The inheritance and gift tax is local. Municipal regulations govern the application of reductions, fees, deductions, and bonuses. The inherent variability of rates and reductions makes it possible for real estate with a similar valuation, located in different autonomous communities, to be subject to substantially different tax burdens. This is only due to the location of the property.

In the case of the donation, the tax is settled according to the norm contemplated by the autonomous community in which the property is located.

In the case of an inheritance, the rule that applies when paying inheritance tax is that of the autonomous community in which the deceased resided. It is important to remember that the definition of habitual residence is where the deceased has lived the longest in the last five years.

How is the ISD settled?

To carry out the self-assessment of donations, form 651 is presented.

For the self-assessment of inheritance, two models are presented: Model 660 (declaration of inheritance) and model 650 (Self-assessment of inheritance).

The payment and the presentation of the self-assessment can be processed both in person before the City Council, and electronically. Normally, the guide to the models to be presented and the procedures for processing can be consulted on the web pages of the City Council’s Tax Agency.

How does kinship influence the tax burden of the gift or inheritance between siblings?

The Finance Law contemplates bonuses in the payment of inheritance and gift tax according to the degree of kinship. Understanding as such, the existing bond between relatives.

The law stipulates four degrees of kinship, and they contemplate whether the relationship is by consanguinity, by affinity or by adoption.

The degree of kinship in direct line counts as many degrees as there are generations between two subjects. Thus, between father and son there is one degree and between grandfather and grandson, two. The degree of kinship between siblings is given in collateral line, it counts as many degrees as there are subjects between the direct ascendant lines of each one. Thus, between two brothers there are two subjects, and the degree of consanguinity is second. So, at the time of donation or inheritance between siblings, you have to take it into account.

There are reductions in ISD taxes contemplated in the State Finance Law according to the degree of kinship, which apply to all of Spain. Each Autonomous Community can add additional bonuses.

What reductions apply to the payment of IDS in case of donation or inheritance between siblings?

Siblings belong to the third kinship group since they correspond to relatives by second-degree collateral line. And for this reason, a reduction of € 7,993.46 is applied.

No reduction is applied to relatives in the fourth group. For the second group, the reduction is € 15,956.87; and for the first group, children under 21 years of age, in addition to the reduction corresponding to the second group, a reduction of € 3,990.75 applies (for each year they lack to reach 21 years of age). The reduction for this criterion has a maximum limit of € 47,858.59. A deduction for disabled people of € 47,858.59 is also established.

Recently, in the Autonomous Community of Madrid, a new 15% bonus has been established for transmissions between siblings, and 10% for uncles and nephews. This provision extends to the siblings the tax benefit until now they possessed the first degrees of kinship. So, in this case, the advantages when donating or inheriting between siblings are greater.

What is the scale to calculate the IDS?

To estimate how much you have to pay in the IDS we must take into account several things:

  • The tax base. The gross value on which the tax is applied corresponds to the amount received. It is common for the beneficiaries of a donation to hesitate when assigning a value to a property that they received without paying any consideration. The municipalities have reference values ​​such as the cadastre. For this reason, excessively low tax base values ​​are commonly subject to verification by the municipal treasury.
  • The taxable base. The result of applying reductions to the tax base, here are deductible expenses and charges. The taxable base corresponds to the net real value of the goods received. The reductions that apply must be adjusted to the provisions of the inheritance and donations law and other current regulations.

Most of the deductions to the taxable base are applied in case of inheritance to:

  • Debts of the deceased
  • Burial, funeral and last illness expenses.
  • Censuses, pensions or similar directly established on inherited assets
  • Reductions according to the degree of kinship.

The full fee results from applying the tax rate to the taxable base.  This tax rate to be applied will depend on the value of the property donated or inherited. It is progressive and ranges from 7.65% to 34%. This type is applied in the Autonomous Communities that have not established normative powers of the IDS. If the Autonomous Community has decreed its own regional scale, it is the one that regulates the type to be applied.

The tax rate results from applying the multiplier coefficient to the full rate. The multiplier coefficient depends on two factors:

  1. The kinship classification group.
  2. The pre-existing patrimony of the heir, donee or beneficiary. The multiplier coefficient ranges from 1 to 2.4, depending on the case.

Other deductions and bonuses are still applied to the tax quota. These will be in accordance with the regulations in force in the Autonomous Community where the deceased or donor has had their habitual residence.

If you are considering leaving a property as a donation or inheritance between siblings, do not hesitate to consult the opinion of specialists like Blue World City to understand everything that it entails. Each case must be thoroughly reviewed to apply all possible reductions. Good advice before starting a donation or inheritance between siblings can be an important advantage. Contact us and from Sky Marketing we will advise you!

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