How is inheritance tax settled in the Community of Madrid?

Inheritance tax is levied on the transfer of assets and rights in the event of a person's death. Thus, all assets, rights and obligations included in the inheritance of that person will pass to the legal heirs of that person (heirs or legal persons). This tax is regulated by Law 29/1987 of 18 December 1987 on inheritance and gift tax. An expert inheritance lawyer will be the right person to help you in this process.

Inheritance tax in the Community of Madrid is reduced by 99% as established in article 21.1 of the Law 58/2003, of 17 December, General Tax Law or LGT; this means that you only have to pay 1% of the tax. It is also important to know that this reduction or discount only applies to direct family members, spouses or common-law partners. In addition, there are other discounts that can be applied so that the final amount is even lower.

Who exposes the tax?

It is the heirs and legal persons who must declare the inheritance tax on the inheritance to which they are entitled. They have 6 months from the date of death to do so, although an extension of 6 months can be requested during the first 5 months of the subscription period, which will begin after the last day of the final period.

When is inheritance tax paid in the Community of Madrid?

Inheritance tax can be paid as long as the deceased has been living in Madrid for the last five years. It should be clear that even if the heir resides in another Autonomous Community, he/she must pay the inheritance tax in the Community of Madrid.

For this purpose, there are different allowances depending on how close you are to the deceased:

• 99% rebate: Heirs according to affinity can apply the 99% rebate to their tax bill.
• 15% discount: Siblings of the deceased are eligible for the 15% discount.
• 10% rebate: The deceased's uncle or nephew can apply the 10% rebate.

How to value a property?

Assets and rights acquired by inheritance must be valued at their actual value at the date of death.

How to pay inheritance tax and how to file?

For the last two years, the obligatory self-assessment system has been the only system for the payment of inheritance tax, which eliminates the possibility of having to file a tax return for the Authority to calculate it.

To file inheritance tax in Madrid, you must complete form 650. You can file the tax return electronically by attaching the corresponding documents and making a self-assessment, or in person at any of the offices of the Tax Administration of the Community of Madrid.

In order to revoke the commitment, prior formalities must be carried out for its submission to the corresponding registry. One of the formalities that must be done in order to pay the taxes is to request a death certificate from the registry.

If there is a will, the legal heirs and/or wills must be submitted. If not, it must be requested from a notary. In the absence of a will, a declaration of heirs, made by a notary, is required.

If for any reason the inheritance tax is not paid on time, different financial penalties will be applied as found in article 40 of the Inheritance and Gift Tax Act.

If the infringement is serious, the penalty is 500 euros, but if there are repeated infringements the fine could be up to 100%.

What is Inheritance Addition and when should it be done?

It is possible that inheritance tax has been paid, but all the assets and rights of the deceased have not been taken into account because they are not known to exist, such as the amount of an income tax return, among others. In this case, in order to liquidate these assets and rights, it is necessary to carry out the "Addition of the inheritance" procedure. If this is presented after the legal deadline of six months for the payment of inheritance tax, it will give rise to the obligation to pay the corresponding surcharges and interest for late payment.

If the heirs have opted to self-file their inheritance tax, they must file a new self-assessment in which they tick the "Additional declaration" box. This new self-assessment needs to substantiate and determine the actual value of the assets owned by the deceased and the right to create the inheritance (both declared and current).

If it is decided to submit the estate settlement file and the addition has been made after 31 December 2020, a new administrative estate settlement file must be submitted to the tax authority, clearly stating that the new property is to be submitted to the tax authority.

Eliminating inheritance tax is a procedure that can be complicated depending on the nature of the property being inherited, as well as family relationships and the number of heirs.

Therefore, for your peace of mind and to avoid mistakes such as future penalties, it is recommended that this process is carried out by an expert inheritance lawyer and at G. Elías y Muñoz Abogados we are experts in this so we can help you if you need it.