A recent court decision in Spain clarified the limits of the concept of “domestic wealth” within the scope of Inheritance Tax, with a direct impact on the amount of tax payable by heirs when the inheritance is mainly made up of financial assets. The case reignites the debate about how far the Tax Authority can go in calculating the tax base.
The Superior Court of Justice of Andalusia ruled in favor of an heiress and annulled the assessment of Inheritance Tax made by the Tax Administration, considering the inclusion of shares, shareholdings and money in the calculation of the household income on the inheritance to be inappropriate.
The decision results from an appeal filed against a settlement that had already been validated by the Central Economic-Administrative Court, but which, according to the court, artificially inflated the tax base of the inheritance, according to the Spanish digital newspaper Noticias Trabajo.
A millionaire inheritance and a disputed calculation
At issue was an inheritance with a global value of 9,372,391.59 euros, left by the father of the heiress in question. The Tax Authority automatically applied the legal percentage of 3 percent provided for in article 15 of the Spanish Inheritance and Donation Tax Law, setting the value of the household contents at 277,041.38 euros.
However, the majority of the inherited assets corresponded to shares in entities worth 7,602,759.42 euros, as well as bank deposits. The heiress contested from the beginning that these assets could be considered household contents.
The defense argued that the Administration included assets that do not legally fall within this concept, as they have no connection to personal use, housing or family daily life, but are purely financial in nature, according to the same source.
Supreme Court jurisprudence blocks automatic criteria
The Superior Court of Justice of Andalusia supported this understanding, highlighting that money and financial securities should not form part of the household income and, therefore, should be excluded from the respective calculation. In reasoning, the judges relied on article 15 of the Spanish Inheritance and Donation Tax Law, which provides for the valuation of household contents at 3 percent of the value of the inheritance, unless proven otherwise.
To rule out the automatic criterion used by the Tax Authority, the court appealed to the Supreme Court’s jurisprudence, citing a decision of September 20, 2022. In this ruling, the Supreme Court defined that household contents only covers movable assets used for personal use or housing service.
According to this jurisprudence, “money, securities and securities” are expressly excluded, as they do not have “any connection with the essential functions of life or with the development of the personality”.
New mandatory settlement, but decision is not yet final
Applying this doctrine to the specific case, the court concluded that it made no sense to calculate household contents based on assets made up almost exclusively of financial assets. The decision, according to , determined the partial annulment of the tax assessment, forcing the Administration to issue a new assessment that excludes more than 7.6 million euros in participations and cash from the calculation base.
Despite being favorable to the heiress, the sentence has not yet become final, making it possible to file a cassation appeal with the Supreme Court.
Legal framework in Portugal
In Portugal, the tax framework for inheritances is different from what happens in other European countries, particularly with regard to the concept of household contents and the way in which assets are taxed in free transfers.
The old Tax on Inheritance and Donations was repealed, with Stamp Tax now being applied to free transfers of assets, in accordance with item 1.2 of the General Stamp Tax Table, with a general rate of 10 percent. There are, however, relevant exemptions. Transfers in favor of the spouse, civil partner, descendants or ascendants are not subject to this tax, falling outside the incidence of the expected rate.
Contrary to what happens in other legal systems, Portugal does not provide for an automatic rule equivalent to the application of a fixed percentage on the inheritance for the purposes of calculating the so-called household income. Therefore, there is no tax presumption similar to the 3 percent applied in other countries.
The concept of filling appears mainly in terms of civil law. The Civil Code associates it with furniture and objects or utensils intended for comfort, service and decoration of the home. In this framework, money, bank deposits, shares and other securities are not considered household contents in a civil sense. This does not mean, however, that these assets are automatically excluded from inheritance for tax purposes.
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