If you are going to sell an inherited property, it is important to know how to reduce the tax burden, which is often very expensive for the heir.

Thus, the Inheritance and Donations Tax, very controversial and highly variable depending on the specific the Autonomous Community in Spain, can reach values that represent a huge tax burden for heirs who wish to sell an inherited property.

In the case of the sale of the inherited estate, reducing the personal income tax (IRPF) on the sale and purchase transaction is essential so as not to be seriously harmed.

If you are going to sell the home that you receive as an inheritance, the first thing you will have to do is accept the inheritance and, after that, change the ownership of the home to, then, face the municipal capital gain, plus the inheritance and donation tax already mentioned.

To pay the tax, you must indicate the value of the property in question. This value is the fundamental key when optimizing the tax burden to be borne by the heir.

The appraisal of a house can be done by setting a market price, or a tax value. Setting a higher market price usually means that the personal income tax payment (IRPF) is lower.

Does putting a high price on your inherited house to sell, mean paying more taxes?

Not necessarily. In the long run, it can be advantageous to increase the price of the house when changing the ownership and indicating its value.

In order to set the price of the property, the Tax Agency allows you to use two different alternatives:

1) The market price, or

2) The fiscal value that sets the autonomic Treasury. This is usually lower than the market price.

In some Autonomous Communities, the inheritance and donation tax is subsidized. Therefore, it is usually interesting to set a higher price for the inherited home, which you want to sell, finally paying less in the IRPF.

Therefore, choosing to set the price of the property according to the higher market price, usually means that, as it is a higher price, the personal income tax payment (IRPF)  is very low or even null when it comes to wanting to sell the inherited house. And it is that the Treasury only obliges to pay taxes on the profits obtained from the sale of the house. And if, when accepting the inheritance and changing the ownership, a higher price was set, the difference when selling will be minimal, or very low, also entailing a minimum personal income tax (IRPF). In addition, the Treasury only makes checks if a value of the house price in the personal income tax is set below the tax value.

Furthermore, taking into account that in some Autonomous Communities only 1% of the inheritance and donations tax fee is paid, personal income tax (IRPF) is a much higher tax burden in these cases. That is why it is more profitable, in the long term, to set a higher inherited property price (market price), although in the first steps you have to pay more for it.

If you want to make a will, or if you need to manage the inheritance of a relative, do not hesitate to contact the Pérez Parras Economists & Lawyers Firm. We are experts in wills and inheritances, as well as in Tax Law.

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