The acquisition value of shares received through an improvement pact shall be the value according to Inheritance Tax

The determination of the acquisition value of assets received through improvement pacts or partition in regional law has raised doubts regarding the application of subrogation rules in Personal Income Tax (IRPF). The Dirección General de Tributos (DGT) has issued a ruling that defines how capital gains or losses must be calculated in these situations.

What the DGT has resolved

The DGT establishes that the transfer of assets through an improvement pact is considered a lucrative transfer due to death, in accordance with article 33.3.b) of the IRPF Law. Consequently, the acquisition value of the shares received will be the one resulting from applying the rules of Inheritance and Gift Tax at the time the pact is formalized, subject to the market value limit.

Furthermore, the binding body clarifies that the subrogation provided for in article 36.2 of the IRPF Law is not applicable if the acquisition value held by the transferor is higher than the value assigned according to the rules of Inheritance and Gift Tax.

What it means for you

If you are an individual receiving shares or assets through succession pacts of improvement or partition, the calculation of your future capital gain when selling those assets will not be based on the original cost they had for the deceased. The starting point for your acquisition value will be the tax value determined under inheritance regulations at the time of the pact.

This criterion limits the possibility of using the transferor's acquisition value to reduce the tax burden on a subsequent sale, especially if said value is greater than the market value or the value according to Inheritance Tax.

What you should do

Upon receiving assets through improvement pacts within the framework of regional law, it is necessary to precisely verify the value assigned to such assets in Inheritance and Gift Tax. Since this value will determine the taxable base of a future sale, each situation must be analyzed to understand the tax impact of the lucrative transfer due to death.