Impact of Upward Rectification in Inheritance Tax on Personal Income Tax

The Dirección General de Tributos (DGT) has issued a relevant ruling regarding the connection between Inheritance and Gift Tax and Personal Income Tax (IRPF). The issue focuses on the tax consequences that arise when an heir submits a supplementary self-assessment to increase the values of the inherited assets.

What the DGT has resolved

The administration has determined that, when performing a supplementary self-assessment of Inheritance Tax with values higher than those initially declared, this new amount becomes the acquisition value for IRPF. This new value will be applicable as long as it does not exceed the market value of the assets.

The resulting acquisition value will not only comprise the amount declared in the supplementary self-assessment but will also include the expenses and taxes inherent to the acquisition. Consequently, the capital gain or loss that must be declared in IRPF at the time of the transfer of the assets will be calculated by the difference between this new acquisition value and the transfer value.

What it means for you

This ruling has a direct impact on individuals who, for various reasons, decide to upwardly rectify the taxable base of Inheritance Tax. While this implies a higher outlay in inheritance tax, it also modifies the accounting cost of the assets for the future.

By increasing the acquisition value, the taxable base of the capital gain in IRPF is reduced when the heir decides to sell the asset. It is fundamental to understand that the acquisition value for IRPF is linked to the reality of the supplementary self-assessment, also integrating the costs associated with the acquisition.

What is advisable

In the event of a possible rectification of the inheritance tax return, it is necessary to evaluate the global tax impact. The decision to increase the values must consider both the increase in the immediate tax burden of Inheritance Tax and the potential benefit in the calculation of the capital gain in IRPF in the future. It is recommended to assess each situation individually to determine the convenience of this tax move.