The income tax declaration campaign has already started and some doubts are beginning to arise. One of them is whether it is necessary to include an inherited home or the transfer of a property from parents to children in the IRPF. In the first case, it must be included but no IRPF should be paid simply for obtaining it, since it is only taxed if it is sold or rented, as the consulted experts point out. In the second case, the Tax Agency clarifies that it must be included in the income tax return as imputed income, something that does not apply if the child lives with their parents.
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Icíar García, tax expert at TaxDown, highlights that the first thing to do when receiving a home by inheritance is “to assess what has been received regarding that property.” She states that if the usufruct or full ownership of the house is received, “it must be included in the income tax return,” while if only the bare ownership is received — the ownership of the asset, but with the limitation of not being able to possess or enjoy it — it is not necessary to include it and, “even if it appears in the tax data, it has no impact on the result.” Rubén Gimeno, technical secretary of the Register of Tax Advisor Economists (REAF), assures that if the beneficiaries decide to rent out this property, it will receive “the same treatment as if they obtain a second home and rent it out,” that is, it will have to be taxed “as real estate capital income.”
In the case that the parents transfer a home to their children, the Directorate General of Taxes (DGT), the governing body of the Ministry of Finance, clarified in October that the obligation to declare this free use falls on the parents. The agency stated that if the transfer is completely free, it counts as a vacant home. The Tax Agency pointed out that this means it is an asset that can generate income, so an imputation of income applies. Javier de la Horra, tax lawyer at Suandco Abogados, states that this circumstance implies paying tax “between 1.1% and 2% of the cadastral value.” Gimeno clarifies that the higher percentage is paid if this value “has not been reviewed for more than ten years.” This same imputation of income applies in the case that a property is inherited and remains vacant without being sold or rented.
When including an inherited property in the IRPF, García highlights that the Tax Agency’s system will directly ask what use is being made of that home. Also, in the case of renting, tax must be paid “on the difference between what the tenants have paid and the expenses.” If it is sold, it must be declared like any other property, following the rules for calculating the gain from lucrative transfers. The amount to be taxed, the Tax Agency points out, is determined by the difference between the transfer value — the declared amount minus the taxes paid — and the acquisition value — the amount declared for Inheritance and Donations Tax purposes without exceeding the market value plus the amount of improvements made and taxes paid.
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“Key” nuances
To this general explanation, a series of nuances must be added to avoid mistakes when including an inherited home in the IRPF, argue the consulted experts. García, the tax expert at TaxDown, highlights that it is “key” to know that if this element is included incorrectly, it can be modified without consequences until June 30, when the income tax campaign ends, since “the last submitted declaration is valid for the Tax Agency.” However, if the change is made after this date, “an interest of 1% plus another 1% for each month elapsed up to a maximum of 15% must be paid.” If this irregularity is detected by the Tax Agency, the penalty is higher. Gimeno points out that “the fine can vary between 50% and 150% of what has not been collected.” That is, the amount not declared plus that percentage is paid.
If the children live with the parents, the law expressly excludes that situation from the tax base, so it is not necessary to pay IRPF. This argument responds to the fact that family cohabitation does not represent economic income for the owners. If this free transfer of the property is not declared, the same penalties will apply as when properties are inherited.
In the case that the home is inherited by several people, specialists agree that the tax burdens associated with the IRPF are shared equally. If any of the beneficiaries decide to renounce this property, the tax lawyer de la Horra states that “that burden is assumed by the other heirs.” Also, unlike what happens in the Inheritance and Donations Tax, the degree of kinship has no influence when paying this tax, Gimeno summarizes.