Recently, Law 6/2023, dated November 22, which modifies Law 13/1997, was published with the aim of mitigating the tax burden on inheritances and donations among close relatives in the Valencian Community.

Among all the measures of this Law, undoubtedly, the 99% tax rate reductions in successions and donations among relatives of groups I and II stand out. This includes donations between children, parents, and spouses.

Since the announcement of this measure, a recurring question among clients and friends has emerged, and we will attempt to address it through this post.

Is it the right time to donate my assets, money, or real estate to my family?

Yes, currently is the most opportune time from the perspective of Inheritance and Gift Tax (ISD). With the recent regulations, a period has opened in the Valencian Community where receiving donations and inheritances will be more economical.

However, the decision requires careful consideration, especially when it comes to stakes in companies or real estate.

It is essential to calculate the overall tax impact, as a donation may involve other taxes, such as Personal Income Tax (IRPF) or the Tax on the Increase in Value of Urban Land (IIVTNU), also known as “plusvalía”.

While the taxation of donations in ISD is surprisingly low, the same operation in IRPF reaches historical highs, emphasizing the importance of analyzing the overall tax impact.

Since donations may be subject to various taxes at different levels (state, regional, and municipal), it is advisable to assess the overall tax impact before deciding whether to carry out the transactions at this time or wait. While we may benefit from reduced rates in ISD, in other taxes such as income tax, the rates are at historical highs, reaching up to 28% for investment income.

Let’s look at some examples of common donations:

Donation of money:

If you want to donate some amount of money to your family members, this is undoubtedly the time, as the usual reductions will be applied, plus an additional 99% bonus.

Remember that all money donations must meet certain requirements, such as being documented in a public deed to benefit from the reductions and bonuses in this tax.

Ensuring proper formality is key to obtaining the associated tax benefits for this type of donation.

Donation of corporate shares:

Donations of corporate shares are also common among family members. To calculate the overall tax impact, we must consider the taxation in:

If resident: IRPF of the transferor for the difference between the transmission value, less the acquisition value, which will be taxed in 2023 at rates ranging from 19% to 28%, depending on the calculation rules established in articles 33 to 37 of the Personal Income Tax Law (LIRPF).

If not resident: 19% – 24% Non-Resident tax for capital gains.

Additionally, the value of the shares is not arbitrary; if they are listed, it will coincide with the market value, and for other unlisted shares, it must correspond to what independent parties would have agreed under normal market conditions. Otherwise, the transmission value to be considered will be, at a minimum, the higher of the net worth or capitalization values (art. 37.1.b) LIRPF).

Remember that in some cases, the transfer of shares of family businesses may benefit from exemptions in IRPF, article 33.3.c) LIRPF. However, given the rigidity of this regulation and the multitude of requirements for family businesses, we recommend carefully analyzing the possible application of these benefits with a tax expert.

Donation of real estate:

The donation of real estate will also experience a significant benefit thanks to the 99% reduction in Inheritance and Gift Tax (ISD). However, when considering this option, it is crucial to take into account other taxes involved:

  • The donee (recipient of the donation) must pay the Tax on the Increase in Value of Urban Land (IVTN), commonly known as plusvalia.
  • The donor or transferor will be subject to taxation in Personal Income Tax or Non-Resident Tax (IRPF or NRT) on the savings base for the gain obtained. This gain is calculated from the difference between the transmission and acquisition values, with rates ranging from 19% to 28%, depending on the gain, or non-resident tax (19% – 24%) if he is non-resident.

In addition, the value of the property cannot be freely established but must align with the reference value set by Catastro.

Keep in mind that there are exceptions to this taxation in IRPF, such as in the case of the primary residence of a person over 65 years old, which may be exempt.

How much is paid for a donation in ISD?

It is essential to note that the application of the 99% bonus does not mean paying 1% of what is received; rather, it means that, once the tax is calculated, you will only pay tax on 1% of it. In practice, this results in low and almost symbolic taxation.

It is crucial to consider that the taxation of donations and inheritances is subject to political changes, responding to the historical conflict between wealth consolidation and wealth redistribution.

Therefore, if you are considering donating money, shares, or real estate to your children, the current time might be the most opportune, as one of the first measures with a change in regional government could be the elimination of this bonus.

FROM MAY 28, 2023

It is important to highlight that all fiscal incentives approved by this regulation have retroactive effects from May 28, 2023. If you have paid Inheritance and Gift Tax in the Valencian Community after this date, you have the right to request a refund applying the new calculation rules.

CONTACT BLAU ABOGADOS

If you are planning to make donations soon, it is highly recommended to contact a specialized advisor or lawyer to analyze your situation comprehensively, optimizing your taxation and efficiently reorganizing your assets.