Inheritance Tax Planning: How to Pay Less When Inheriting.

If you’re interested in inheritance tax planning, don’t hesitate to contact us. And if you’re in the Valle del Jerte, we’ve organized an informational session on December 30. We look forward to seeing you!

When we think about inheriting, we often aren’t aware of the tax burden it can bring.

In an already difficult time, facing these obligations can make things even harder.

So, if you’re about to receive an inheritance and want to minimize the tax impact, tax planning becomes essential for protecting what’s rightfully yours and honoring the legacy left to you without adding unnecessary burdens.

WHY PLAN YOUR INHERITANCE?

Inheritance tax in Spain varies greatly: each autonomous community has its own rules on exemptions and reductions for the Inheritance and Gift Tax (ISD).

This means that, depending on where you live, you could pay more or less upon inheriting.

Therefore, before taking any steps, it’s crucial to understand the regulations and tax benefits in your region to avoid unpleasant surprises.

Specifically, in Extremadura, this exemption is set at 99%.

But beware, as that remaining 1% can be quite costly for the recipient (as it can add up significantly).

Additionally, tax planning not only reduces taxes but also prevents potential family conflicts.

With a well-structured will and an appropriate tax strategy, inheritance can be distributed fairly and peacefully, benefiting everyone.

WHAT TOOLS DO I HAVE FOR PLANNING?

Here, two main options come into play:

The Will: Drafting a detailed and foresighted will is the first step. Not only does it allow you to decide how the estate will be distributed, but it also applies legal reductions and exemptions to reduce the tax impact.

Lifetime Donation ("inter vivos"): In some cases, it may be advantageous to gift assets while alive. This can help reduce the tax burden on the inheritance and is also helpful if you want to support future heirs with a personal or professional project.

TAXES ON INHERITANCE: ISD AND IRPF

When transferring assets, heirs face two main taxes:

Inheritance and Gift Tax (ISD): This is the direct tax that affects beneficiaries. The amount varies depending on the autonomous community and the degree of kinship with the deceased, with applicable exemptions and reductions in each case.

Personal Income Tax (IRPF): Although this tax usually doesn’t affect the inheritance recipient, it may apply in cases of lifetime gifts, where the donor could face a capital gains tax (even without receiving any money).

WHERE DO I START?

Inheritance tax planning can be complex and requires a personalized approach that considers the unique aspects of each case.

At American & Legal Spain, we are experts in this field and ready to guide you step by step. Our team of professionals provides comprehensive, personalized advice that explores all available options to design a tax strategy tailored to your situation and family goals.

We examine everything from applicable reductions and exemptions to alternatives like lifetime gifting, always within the framework of current regulations in your autonomous community, to optimize the transfer of assets with the least possible tax impact.