Compensating heirs with assets is considered a gift

Managing inheritances often requires adjustments after the signing of the adjudication deeds. However, any modification involving the delivery of assets to compensate for inheritance rights outside the established legal channels can have unexpected tax consequences.

What the DGT has ruled

The Dirección General de Tributos (DGT) has analyzed the possibility of rectifying a deed for partial inheritance adjudication by delivering part of an asset (in this case, a farm) to compensate an heir for their rights. The agency has determined that this operation does not constitute a mere rectification of the original adjudication, but must be understood as a gift.

The DGT points out that the rectification of an inheritance adjudication deed is a civil matter. For such a deed to be annulled or modified, it must be challenged judicially. If the heirs choose to compensate one of them by delivering the ownership of an asset to remedy the previous lack of adjudication, the transfer is subject to Inheritance and Gift Tax (ISD) under the concept of a gift.

What this means for you

If you are an heir and find yourself in a situation where the initial adjudication was incomplete or incorrect, you must be cautious when attempting to remedy it through the delivery of additional assets. If a transfer of ownership is made to compensate a co-heir without a judicial ruling annulling the previous deed, the Tax Administration will consider it a gift.

In this scenario, the taxpayer will be the donee (the person receiving the asset) and the tax base will be the net value of the acquired assets, in accordance with Law 29/1987 on Inheritance and Gift Tax.

What you should do

When faced with the need to modify an inheritance adjudication, it is fundamental to distinguish between the civil route and the tax route. Since the rectification of deeds is a civil matter, any movement of assets that does not conform to the original adjudication must be rigorously analyzed to avoid the emergence of a new taxable event via gift. It is recommended to assess the legal status of the deed and the viability of compensation mechanisms before proceeding with any transfer of assets.