Learn how to value inherited real estate

When an inheritance is received, the most common is that the inheritance consists of real estate. Knowing that the inheritance requires the payment of taxes according to its value, one of the questions that frequently arises is how is real estate valued in an inheritance?

In this article, from Sky Marketing we explain how properties are valued in an inheritance, as well as the payment of taxes that it entails.

Why does the real value of an inherited property matter and how is it established?

The real value of a property received in inheritance is important because on the real value that we declare, the amount of inheritance and gift tax (ISD) is calculated, which we must pay to the Autonomous Community to which the deceased belonged. The settlement of this tax has a term of six months after the death of the deceased.

To understand how real estate is valued in an inheritance, it must be borne in mind that the real value corresponds to the price that would be agreed to pay for the property in a normal sale and purchase transaction. Establishing the actual value for which we will declare an inherited property is not a simple decision. Usually, the property is declared by one of the following values:

1) Following its cadastral value.

2) Following its acquisition value.

3) Following the value granted by the Treasury, its tax value.

Choose the real value to declare derived from receiving an inheritance

At this point it is important to note that if the heir declares at the time of paying the inheritance and donation tax a value that is less than the tax value, it is possible that the Treasury will carry out a check of the value of the property, and that from this tax value, claim higher payments from the heir.

Due to this, many heirs, upon receiving the inheritance, request the Autonomous Treasury to grant a tax value to the property, from which to settle the inheritance and donation tax. Each Autonomous Treasury establishes the fiscal valuations autonomously; not always following the situation of the real estate market, for which the tax value can be even higher than the sale price in the market. Usually, the request for verification of value can be made online and will be valid for 3 months from the notification.

How will you pay less in taxes?

As the general interest is to avoid -as much as possible- huge tax burdens, as heir you should bear in mind that it is more convenient for you. The key factor that you must consider to make this decision is the destination that you are going to give the inherited property.

The intention is to maintain ownership

When it comes to knowing how real estate is valued in an inheritance, in this scenario or the taxes to be paid will be the inheritance and donation tax and the municipal capital gain (by transmission mortis causa). The Autonomous Community where the deceased lived is the one that estimates, based on the real value that is declared, the amount of these taxes and it is where they must be settled. In this case, it is convenient to declare the ISD for the cadastral value of the property. This if the Local Treasury allows it. As normally the cadastral value is less than the market value, it allows us a lower outlay.

The intention is to accept the inheritance and then sell it

Three taxes are involved in this scenario:

  • The first, the ISD, which will establish the acquisition value of the property.
  • The second is personal income tax, for which you will settle based on the capital gain you achieve when you sell the home. In this case, it will be convenient for you that the value declared in the ISD is as close as possible to the market value. This is due to reducing the subsequent capital gain for which you will be taxed in your Income Statement, since inheritance tax is usually much cheaper than personal income tax.
  • In the case of municipal capital gains, you would have to pay it twice: the first time for the acquisition of the home, and the second time for the sale.

What does the acquisition value of an inherited property correspond to?

The acquisition value corresponds to the value granted to the home for ISD purposes added to the expenses associated with the acquisition of the property; such as the payment of improvements, notary fees and the payment of taxes itself. The amount of capital loss or gain will be calculated on the acquisition value.

You can also read information about:

  • When is IBI paid?
  • How to calculate the IBI
  • Who pays the IBI?
  • Invest in real estate
  • Real estate tax

How much is paid for municipal capital gains for homes received in inheritance?

Another aspect of understanding how real estate is valued in an inheritance is capital gains. The capital gain (IIVTNU) is a direct municipal tax, the tax base of which is calculated from the increase experienced by urban land, revealed each time a property is transferred. This is whether the transmission occurs by sale, donations or inheritance (mortis causa ).

For the calculation of capital gains mortis causa, the following is taken into account:

  1. The date of transmission, which corresponds to the date of death of the transferor.
  2. The cadastral value of the land.
  3. The date on which the deceased (the deceased) acquired the property.

Based on the period of time elapsed since the deceased acquired the property until the date of his death and the current tax ordinances, the City Council will indicate the amount to be paid. The term to settle the capital gain and the ISD is the same: 6 months from the date of death.

How to reduce the tax burden represented by capital gains?

  1. Prove that there has not been an increase in soil . In this case, the heir can present the evidence that he considers pertinent to prove that there is no increase in the real value. This in the period from the acquisition of the property by the deceased and the date of his death. This can be done by presenting expert evidence or deeds in the name of the deceased.
  2. An alternative to reduce the tax burden of capital gains in inheritance cases is to take advantage of the legal vacuum that this tax has currently fallen. The Constitutional Court declared the tax unconstitutional because it did not consider that situations of patrimonial loss were accredited in the transmissions and due to failures in the formula applied to calculate the tax.

Considering that, to date, there is no way to calculate the tax, it is possible that the taxpayer avails himself of this legal vacuum.

  1. Apply to inheritance bonuses. The tax ordinances of each City Council provide for the application of bonuses to municipal taxes. To apply to them, some requirements must be met; the most common is to submit within the deadlines set by the City Council, normally six months. The bonuses represent substantial savings, which in some cases can be as high as 95%.

Understanding how real estate is valued in an inheritance is a complex matter. The decision of what real value is the most convenient for tax purposes must be taken after weighing the destination that is available for the property. At Deplace we look forward to offering you expert advice and accompanying you in the decision-making process. Do not hesitate to contact us.