How much inheritance tax do you have to pay when you inherit a house?
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We’d all like inheriting to be something positive in our life. However, it can often be very stressful. It should be rather straightforward process, but the house to be inherited could have outstanding debts or the heirs simply mightn’t have enough money to pay the taxes. Below we give you a rundown on how much tax you have to pay when you inherit a house to clear up any doubts you might have.
Why are inheritances frustrating?
Inheritances can be good news because you can come into houses in very good condition (with a certificate of habitability) that can, in turn, lead to earning a passive income. Nevertheless, even if you inherit a property that’s worth a lot of money; you mightn’t have enough money to pay the taxes on it. What can you do in such cases? Is there a solution? Bear the following information in mind.
Do you have to pay taxes when you inherit a house or are given one as a gift?
Before looking at it in greater depth, you should be aware that inheriting a house is not the same as being gifted a house. Inheriting a property means that the owner has passed away and has left their property to someone else in their will. On the other hand, gifting a home means that ownership of the property is transferred to someone else during their lifetime. The latter is usually done because there are less taxes to be paid.
The amount to be paid depends on the autonomous community in which the property to be inherited is located and the money must be paid wherever the transferor resides. Inter vivos gifts, on the other hand, are payable wherever the property is located.
Inter vivos gifts are becoming more widespread because they’re more flexible. For example, you can transfer the ownership of a property to another person, being awarded the right of usufruct. However, if any setback occurs, the inter vivos gifts can be revoked.
What taxes are payable when inheriting a property?
Taxes have to be paid when a property is inherited or gifted. This can be overwhelming because, quite often, people don’t have enough money to pay them. Below is a rundown of the taxes to be paid when inheriting a property.
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Inheritance and gift tax
- It is the responsibility of the autonomous communities to regulate this matter, so it varies from one autonomous community to another.
- It is an individual, scalable and autonomous tax. This means that the higher the value of the property, the more tax that needs to be paid. It also varies depending on the destination of the asset and the kinship.
- If you inherit a permanent residence, there is a state law that reduces the tax by 95% for the spouse, ascendants, descendants or collateral relatives over 65 years of age who have lived with the deceased during the 2 years prior to their death. However, the total value of the property may not exceed €123,000 for each heir and, what’s more, it must be used as the primary residence for 5 years after the death.
- If you acquire a property as an inter vivos gift during your lifetime, the tax rate can vary from one autonomous community to another.
Municipal capital gains tax
- The capital gains tax on the inherited apartment needs to be taken into account because it’s a direct tax that taxes the increase in the value of the property since it was originally acquired.
- It’s known as the Tax on the Increase in the Value of Urban Land (IIVTNU)
- The heirs or the recipients of the inter vivos gift have to assume this tax.
- In total, the amount to be paid is somewhere between 10% and 20% of the property’s cadastral value.
Personal income tax
- Known as IRPF.
- You don’t have to pay this tax if you inherit a property.
- If you receive an inter vivos gift during your lifetime, the donor has to pay between 19% and 32% tax on the proceeds generated since the property was purchased. This doesn’t apply if the donor is over 65 years of age, if it’s a permanent residence or if money is gifted.
We recommend going over this information before you inherit or are given an inter vivos gift so you can decide which one is most cost-effective for you.
How much do I have to pay if I inherit an apartment?
If you’re wondering how much you have to pay to inherit a house, the percentage varies between 7.65% and 34%. This is because each autonomous community has its own laws in this regard.
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How can you inherit a house without paying taxes?
There’s no way to avoid paying taxes when inheriting a property. However, don’t fret; because you can reduce the amount to be paid in the following ways:
- Split the inheritance. By splitting an inheritance, the taxes to be paid by the heirs can be reduced. The more the inheritance is split, the lower the tax burden. For example, instead of leaving a house to just the spouse, it would be better to split it between the spouse and the 2 children, for example.
- Leave a larger share to minors or people with disabilities. Leaving a larger share of the inheritance to minors or people with disabilities can lower the taxes they have to pay. Therefore, by leaving an inheritance that benefits these heirs the most, a significantly lower amount of tax is paid.
- Pay in instalments. It’s important to apply to defer inheritance tax within 5 months of death. You can request a one-year deferral if you were not left enough money in the inheritance to cover the taxes. There’s also the option to pay taxes in instalments over a period of up to 5 years. If you’re a spouse, ascendant, descendant or collateral relative, are over 65 years of age and have lived in the inherited home with the deceased for 2 years prior to their death, you can apply for a three-year tax deferral.
- Turn to a financial intermediary. If someone doesn’t want to waive their right to the inherited home but doesn’t have enough cash to make a deferred payment, they can turn to a financial intermediary to apply for a home equity loan, provided that the house has been fully or almost fully paid for. These lenders can grant loans of between 30% and 40% of the assessed value of the house that can be used to pay off the taxes.
As you can see, although you’ll have to pay tax when you inherit a house, there are different ways to go about paying less tax. All you need to do is be reliably informed to find a solution to paying the taxes on an inherited property. What’s more, if you inherit a home, you can use that inheritance to invest in a higher-value property. At AQ Acentor, we offer a wide range of properties at affordable prices to improve your quality of life.