When does inheritance tax become statute-barred?

Inheritance tax is a tax burden that all inhabitants of Spain have to pay when they receive an inheritance. In fact, this is true even if we live in an autonomous community that offers tax relief or exemptions. Due to the fact that many people take a long time to be able to make effective the will they received from their parents or any other friend, spouse or relative, the question arises as to when the inheritance tax expires, if at all. Here we will look at it.

What is inheritance tax?

This tax is officially known as Inheritance and Gift Tax. Everything about it can be found in Law 29/1987 of 18 December 1987 and in Royal Decree 1629/1991 of 8 November 1991. It is regulated by the autonomous communities and is levied on all assets that have been acquired by a natural person through a legacy, inheritance or donation. The difference between these last two concepts is based on whether the transfer has taken place 'mortis causa' (death) or 'inter vivos' (by agreement between living persons).

What does the law say about the statute of limitations for inheritance tax?

Firstly, the legislative texts referred to above indicate that inheritance tax must be paid within the territory in which the deceased had his or her habitual residence. In other words, even if he spent the last moments of his life in Madrid, if he had a house in Malaga marked as his residence by means of his census certificate, his relatives will have to manage it through the Junta de Andalucía (Regional Government of Andalusia).

However, with regard to the inheritance tax limitation period, the legislation in force provides for a period of 6 months for voluntary filing. This period starts to run from the day on which the causal event occurred, i.e. the death of the testator. Moreover, in some Autonomous Communities it is possible to extend it for a further 6 months on the grounds that there are problems in quantifying the amount of the inheritance and, therefore, in calculating the value of the tax.

In any case, the law specifies that, during this time, the beneficiaries must present the relevant liquidation to an authorised body.

What happens if you do not present the liquidation within the voluntary period?

Contrary to what many people believe, the inheritance tax is not time-barred once this period has elapsed. For this, you have to wait considerably longer. The period of time allowed by the tax authorities for filing the tax return simply expires.

This is where the provisions of Article 27 of the General Tax Law come into play. This refers to the surcharges that the person obliged to pay the inheritance tax, i.e. the inheritance tax, will have to pay for not having done so within the voluntary period.

The percentage of the surcharge to be paid will depend on the amount of time the taxpayer is late in paying the tax. However, in general, a surcharge of 5% is usually imposed when the tax assessment is submitted between the seventh and twelfth month after the death. Similarly, between the first and second year this surcharge rises to 10 % and reaches 15 % between the second and third year. Finally, it reaches 20 % between the third and fourth year.

This does not mean that if the beneficiary of the inheritance does not file the relevant tax return within the first six months after the death and is subsequently discovered, he or she will only have to pay the aforementioned surcharges. In addition, and in accordance with the provisions of Article 28 of the General Tax Law, the Inland Revenue may also impose penalties.

On the other hand, if the taxpayer does not present the inheritance tax settlement before the voluntary deadline is exceeded, he/she will lose the right to receive any allowance or exemption from the Autonomous Community in which he/she resides. This is a real risk since, on most occasions, the tax authorities usually become aware of the non-filing and demand payment.

So when does inheritance tax become time-barred?

After what has been said above, you will already have an idea. Specifically, the statute of limitations for inheritance tax is four years after the death of the deceased. If in this period of time there has been no voluntary presentation of the liquidation nor has there been a specific request from the Tax Administration, the beneficiaries will not have to pay the tax.

The requirements of the Inland Revenue and their impact on the inheritance tax limitation period.

This is another point that generates doubts among beneficiaries. Many of them believe that, despite having received the summons, if they manage to drag out the process long enough for the 4 years referred to above to elapse, the tax is time-barred and so is the obligation to pay it.

However, this is not the case. A 'sine qua non' requirement for inheritance tax to be time-barred is that the Tax Administration has not initiated any action aimed at collecting the debt. If it does so, the limitation period ceases to be effective and the beneficiary of the inheritance will have to pay. The same applies if the taxable person lodges any kind of claim or appeal.

In any case, even if the beneficiary could be subject to a sanction and be obliged to pay a surcharge on the tax, if these 4 years go by without receiving any news from the Administration, he/she will not have to pay these increases either.

Is it necessary to pay inheritance tax when the statute of limitations has expired?

Sometimes, the tax authorities of the autonomous community in which the deceased person habitually resided request payment after the four years have elapsed. This is where the question arises as to whether it is necessary to pay the prescribed inheritance tax, even if it is only a formal procedure.

The answer is no. By "liquidating" we mean paying the tax and, obviously, once the statute of limitations has expired, it is no longer necessary to do so. Therefore, even if a notification arrives, we can lodge a claim on the grounds that it is no longer valid and disregard everything else.

Some conclusions on inheritance tax and its statute of limitations

Can we avoid paying inheritance tax? Yes, it is a real possibility. However, it is highly unlikely that, once the voluntary period has elapsed, the Public Administration will not realise the error and notify the beneficiary that he/she must pay, with the resulting surcharges, penalties and loss of allowances and exemptions.

That said, our advice is that it is advisable to take advantage of the voluntary period to pay the amount of inheritance tax in all cases. In the long run, not doing so means flipping a coin with a high risk that, in the end, we will have to pay a much higher amount than initially stipulated. So it is better not to gamble with it.

Consult our inheritance lawyers if you have any doubts about inheritance tax.