alternatives to avoid giving up an inheritance if you cannot afford the Inheritance Tax
When the word inheritance appears, the great dichotomy arises. Receiving inherited assets can be a highly beneficial financial step, but, at the same time, it can become a complex process in which The balance between assets and debts, the liquidity of the assets and the cost of associated taxes must be taken into account.. Among the tax obligations is precisely payment of Inheritance Taxa tax that “taxes the transfer of assets and rights due to the death of a person.”
What is the Inheritance Tax and how does it work?
Inheritance tax has become one of the most controversial taxes in recent years in Spain. This is because It is a state tax that is transferred to the Autonomous Communitiesso its cost will depend on the place where the deceased person resided for at least the last 5 years. This has meant that in some communities it is a merely symbolic tribute, such as in Madrid or Andalusia, while in other parts of the Peninsula the cost is higher, thus causing important differences.
This tax also depends on the degree of relationship with the deceased, as well as the value of the inheritance to be received, which may mean a smaller or larger increase in the cost to be paid. Besides, The payment must be settled by each heir and must be made within a period of six monthswith the possibility of extending another six. This situation sometimes causes the person who receives the inheritance to have to disburse an amount of money that they may not have, so they end up giving up the inherited assets. But, in this situation, There are alternatives that can be the solution to face the Inheritance Tax.
Alternatives to face the Inheritance Tax
Facing the Inheritance Tax must require a certain strategy, despite the speed (6 months) with which it is requested. That is why it is important to do the math, but also, know the options that the regulations offer to face the acceptance of an inheritance while complying with the tax obligation but without facing a rapid and large loss of liquidity. However, it is convenient always review the advantages and disadvantages of any alternative to make a choice that best suits the financial and personal situation of each one.
- Defer or split payment: You can postpone or divide the payment by requesting it within 6 months and assuming as an inconvenience that there will be late payment interest. Depending on the amount, the presentation of a guarantee or guarantee may be required.
- Negotiate with other heirs: If there is more than one heir, it can be agreed that one of them will face the financial burden of the tax by receiving a larger part of the inheritance.
- Request a bank loan: Some banks have specific products to cover illiquidity and allow tax to be paid before assets can be sold or transferred. Now, there are charges of interest and commissions.
- Accept to profit inventory: This is a protection option. The heir is responsible for the debts of the deceased only up to the value of the inherited assets, without putting his or her personal assets at risk.
- Sell part of the inheritance: It is a common strategy to obtain liquidity, especially when real estate is inherited. But be careful, the sale is carried out after the acceptance of the inheritance and the settlement of the ISD, which implies the generation of other taxes for the heir such as Municipal Capital Gains and Income Tax (IRPF) for the capital gain.
