The Constitution rejects the appeal of the Xunta and approves the taxation of inheritance during life

Plenary session constitutional Courtin a judgment for which judge María Luisa Balaguer was the rapporteur, rejected the appeal of unconstitutionality filed by Xunta de Galicia against the regulatory change that changed taxation inheritance in lifespecifically in the taxation of income tax (personal income tax) for the sale of property received on the basis of an inheritance contract (improvement or removal).

The dispute was about different provisions of the Act law on measures to combat tax fraud approved in July 2021, which introduced a tax penalty for those who sell property received while their parents or grandparents were alive within five years of signing the inheritance contract. With this change, the Ministry of Finance intended to avoid cases of tax evasion, in which the inheritance while alive is used as an instrument to update the tax value of the property that the heir sells immediately afterwards, minimizing the quota that is personally paid income tax for capital gains.

With the change, if the taxpayer sells the property he received through living inheritance before five years, and during the lifetime of the bequeather, the capital gain in income tax is calculated according to the value at which the bequeather acquired the property. However, if the latter has died or more than five years have passed since the signing of the inheritance contract, this capital gain is calculated based on the value of the property at the time the inheritance was formalized during his lifetime, thus reducing the tax bill to a minimum.

The Xunta challenged this legal change because it considered it contrary to several articles of the Constitution, realizing that the new rule creates double taxation and forces the recipient of the inheritance while alive to pay tax on capital gains that are not his, but those of the persons who left him goods. In addition, the Galician government argued that the principle of equality was violated by the unequal treatment of transfers based on the passage of time or whether the deceased had died or not, and emphasized that it saw no reason why capital gains should be taxed in transfers deriving from contracts of succession which, however , remains untaxed when the property is received after the death of the deceased.

The Constitution rejects all these arguments in its sentence. So, the majority of the court agrees that no double taxation “because the economic capacity that is taxed by income tax is different from that taxed by inheritance and gift tax.” In other words, the taxpayer does not pay inheritance tax on the increase in his assets when he receives the goods, but he pays the income when he sells them to a third party, since it is another transaction.

As for whether the recipient of the inheritance while alive is taxed for his own profit or for the benefit of another, the high court emphasizes that the legislator “has a wide freedom of configuration when determining the principle of economic capacity, which can be adjusted for reasons of tax techniques.” And as for the different treatment compared to inheritance due to death, the judgment points out that inheritance contracts have effects in the present, “a circumstance that the legislator can legitimately take into account in order not to apply to them the same tax treatment as to inheritances”. transfers due to death.

Finally, ruling also denies that there is retroactive application of the new regime, “since the income from the transfer of the property obtained by the apartment is generated by its sale and must be taxed according to the current regulations, and not according to the one that existed at the time of acquisition”.

Two judges announce a special vote

The constitutional verdict is not unanimous, because the judges Enrique Arnaldo and Concepcion Espejel announced a individual vote against, considering that the appeal had to be assessed. They agree that the contested regulation “establishes arbitrary discrimination between taxpayers among whom there is no objective reason to differentiate; there is no objective and reasonable purpose that legitimizes unequal treatment of equal situations”.

The two magistrates, proposed by the PP, do not share the equality for tax purposes established by the sentence between the succession pacts of Galician civil law and the donation inter vivos, which justifies the difference in the tax treatment of those who acquire property after the death of a relative and those who inherit it during their lifetime. .

In this sense, Espejel and Arnaldo emphasize that separation is not a gift, but an inheritance agreement, even when formalized by contract. inter vivos, since certain property is obtained on the basis of that agreement, but the identification corresponding to the opening of the inheritance is irrevocably waived. “Separation, therefore, has an undoubted nature mortis causawhich is recognized by the Regulatory Law on Inheritance Tax itself, which among the titles of inheritance, in addition to inheritance and bequest, provides for others such as inheritance contracts»

The judges consider that the purpose stated in the law to prevent evasion operations “is based on the assumption, which does not allow proof to the contrary, that in any case there is a fraudulent purpose, without distinguishing between the grantors who had the stated purpose of tax savings and those who legitimately decide to this institution, deeply rooted in Galician formal law, without fraudulent intentions”. And they clearly see that the regulation “does not respect the principle of the economic capacity of the department”, forcing them to pay tax on a hypothetical profit that, if it had arisen, would have been attributed to the person who left real estate.