Two constitutional judges confirm that no income tax is payable on the sale of inherited property during one’s lifetime

Two weeks ago, the Constitutional Court resolved the debate on the new taxation of inheritance during life, which forced to pay more in income tax (IRPF) if the goods have been sold in life who bequeathed them and before five years had passed signing the inheritance contract. high court rejected Xunta’s appeal against this change in tax regulations, which in the opinion of the Galician government represented an attack on Galician civil law and the fiscal autonomy of the community, although it did not do so unanimously. Two magistrates from the conservative minority, Enrique Arnaldo and Concepcion Espejelthey presented a individual vote againstin which they present in detail the legal arguments that, in their opinion, should have led to the evaluation of the appeal’s unconstitutionality.

And that, according to his criteria, the current text of the regulation violates the principles economic capacity, prohibition of tax deductions and equality before the law contained in the Magna Carta.

The starting point of his argument is that the improvement or separation agreements governed by Galician civil law (although the judges refer only to this last modality) are anticipated inheritances which, from a civil and tax point of view, are considered hereditary titles, which is why “it must have the same treatment that the legal-tax system gives inheritance”.

This happened with previous regulations. A taxpayer who received an inheritance during his lifetime was taxed with the same inheritance tax (although in most cases, with a zero tax, due to the exemption applied in Galicia up to the first million euros between direct relatives) and at the same time, the values ​​of the goods received were updated. In this way, the one who sold the house or property that his parents left as an inheritance, reduced the capital gain that he had to declare in the IRPF, because it was calculated as the difference between the sale price and the value that the property had at the time. that he got it from his parents and not with the price they paid for the property.

This made save that “surplus value of the dead” and avoid paying a higher tax for the sale of the property, in many families they have opted for sign inheritance contracts between parents and children so that they were the ones who, after receiving the goods, sold them. For this reason, a change in the law established that if this sale takes place before five years from the lifetime inheritance, and provided that the person who left the property has not yet died, the excess value of the deceased person is resurrected so that the new owner (the child who received the house) one should calculate the capital gain by taking as a reference the price his parents paid for the farm or house and not the price the house had when he inherited it while he was alive.

In your sentence, most of the Constitution supported the change because of the legislature’s wide freedom to configure taxeswhich in his opinion allows the Treasury to equate the regime of inheritance contracts in personal income tax with the regime of donations.

However, for Arnaldo and Espejelo, what this regulatory change approved in 2021 does is “create a skill” that allows the same operation, in this case a lifetime inheritance, to be treated simultaneously as an inheritance and a donation. “It is neither legally nor logically possible for the legal system to attribute to inheritance contracts, firstly, the nature of inheritance, for the purpose of bringing them under the scope of inheritance tax, and immediately after that of gifts, with the sole intention of excluding them from the so-called surplus value of the deceased in income tax”, explained both magistrates.

Other people’s profits are taxed

In this sense, Arnaldo and Espejel point out that in addition to introduce discriminatory treatment As for other heirs who receive property after the death of a relative, the new tax regulations on inheritance during life oblige the recipients of the same to «bear the burden of other people’s wealth, preventing them from fulfilling their obligation to contribute, not in any way, but exclusively in accordance with their economic possibilities”.

And that’s it, remember, although the intention is to equalize the sale of assets inherited during life in that five-year transition period with the sale of assets donated by a living person, in practice they do not have the same tax treatment. And that is that, in the case of donations, the person who receives the property is taxed with the donation tax, but the person who gives it must report work to the Personal Income Tax, paying the capital gain realized from the moment of acquisition of the property to the moment when he gave it to a third person .

However, in living heirlooms passed down five years ago, it is new owner who is responsible for pay income tax on capital gains that belong to someone elsesince it includes that which arose during the period when the said property was in the possession of their parents or grandparents, so that in any case the latter would be subject to income tax.