Inheritance tax has been reduced in Madrid: find out how it affects you

On 1 July, a change to inheritance tax in Madrid came into force that will result in savings. We explain all the details in this article so that you know what effects this change will have.

When someone passes away, it is important to complete a series of procedures for the inheritance, and one of the most important is to settle the inheritance tax. This tax is transferred to the autonomous communities, so there are significant differences between what is paid in one place and another, due, among other factors, to the allowances that apply, and it is essential to be familiar with the regulations.

Factors influencing the calculation of inheritance tax in Madrid

To find out exactly how much you will pay in inheritance tax in Madrid, you must consider three essential factors:

• The first is the tax base, which is made up of the total value of the inheritance. To calculate this, both real estate and other assets (bank accounts, shares in companies, etc.) and any debts owed by the deceased are taken into account.
• The second important factor is the reductions and allowances that apply depending on the relationship of the heirs to the deceased or the type of assets that have been inherited.
• Finally, the third factor is the multiplier coefficients that will influence the final calculation of the amount to be paid for inheritance tax.

New inheritance tax allowance in Madrid

One of the allowances applied to inheritance tax in Madrid was 25% for inheritances between siblings, uncles, aunts and nephews. Under the new regulations, the allowance increases to 50%, which will mean significant savings for heirs who have to declare the tax in the Community of Madrid.

On the other hand, in Madrid, another 99% allowance already applies in the case of kinship relationships between children, grandchildren, parents and grandparents of the deceased.

How is inheritance tax calculated in Madrid?

To calculate inheritance tax in Madrid, it is important to follow a series of steps, which are as follows:

Establishing the tax base

The first thing that needs to be calculated, as we have seen, is the value of the inheritance. Therefore, the values of all the deceased person's assets and rights are added together. This gives us the gross estate. To obtain the net estate, the debts and liabilities of the deceased's estate must be subtracted from the gross estate.

Application of the corresponding reductions

We have already seen that there are several reductions or modifications that can significantly affect the final amount to be paid by the heir.

There are two groups of reductions:

• Those that affect direct heirs such as children and spouses, depending on their relationship to the deceased.
• Those that affect certain types of assets such as the primary residence. The purpose of this reduction is to favour heirs who wish to retain ownership of the deceased's property.

Calculation of the tax liability

To calculate the tax liability, a percentage is applied to the taxable base. This percentage varies depending on the Autonomous Community. In Madrid, it is a progressive percentage, which therefore increases in line with the increase in the value of the inherited assets.

Application of multiplier coefficients

These coefficients will depend on the assets already owned by the heir and may result in an increase in the tax payable.

Deductions and allowances

We have already seen that in the Community of Madrid there are two types: 99% for descendants and spouses of the deceased; and 50% for more distant relatives such as siblings, uncles, aunts and nephews (this percentage was changed on 1 July, and was previously 25%).

Deadline for filing inheritance tax in Madrid

If you receive an inheritance and have to pay inheritance tax in Madrid, the deadline for doing so is six months from the date of death.

You can request an extension for another six months, and you must do so within the first five months of the initial filing deadline. To do so, you will need to provide a photocopy of the death certificate and a power of attorney if you are not handling the process yourself.

You can apply for the extension in person at any of the registry and citizen service offices of the Community of Madrid (Tax Agency offices, taxpayer service centres or citizen service offices) or online on the Community of Madrid website.

What happens if you do not file your inheritance tax return on time?

It may happen that, due to an oversight or ignorance of the deadlines, the inheritance tax return is filed after the deadline. If the heirs do not file the inheritance tax return within the established deadline, a surcharge may be imposed on the tax debt.

The surcharge will be as follows:

• 5% if the tax is filed within 3 months of the initial deadline.
• 10% if it is filed between 3 and 6 months after the initial deadline.
• 15% if it is filed more than 6 months after the deadline.

It is important to know that these surcharges accumulate and must be paid once the corresponding tax has been settled. This can affect the finances of the heirs, so it is essential to have the help of an expert inheritance solicitor to carry out all the necessary procedures.

At G. Elías Muñoz Abogados, we have been helping heirs receive their inheritance and settle inheritance tax on time for over 25 years, in order to comply with the law, benefit from the corresponding allowances and avoid surcharges and penalties.

Contact us if you need help with an inheritance or paying inheritance tax in Madrid.