El Impuesto de Sucesiones y Donaciones y los Seguros de Vida

As we already commented in a previous article, when the policyholder and the beneficiary of a life insurance are different people, the collection of said insurance, whether it is done in the form of income or in the form of capital, is taxed by the Tax Inheritance and Donations (ISD) . You can expand this information in the article  Taxation of life savings insurance .

The fact is that Law 29/1987, of December 18, on Inheritance and Gift Tax, places special emphasis on life insurance, despite the fact that the Autonomous Communities are later responsible for managing the tax.

What is the Inheritance and Gift Tax (ISD)

The Inheritance and Gift Tax (ISD) is levied on capital gains obtained for profit by natural persons. This tax has a direct and subjective nature; that is to say, that on the one hand it taxes the obtaining of the income at the moment in which it occurs although, on the other hand, personal circumstances are taken into account.

The taxable event of the Inheritance and Gift Tax is constituted by:

• Acquisitions of goods and rights by inheritance, legacy or any other successor title.
• The acquisition of goods and rights by donation or by any other legal transaction free of charge (that is, without anything in return) and “inter vivos”.
• The receipt of amounts by the beneficiaries of life insurance contracts, when the contracting party is a person other than the beneficiary.

As for the passive subjects of this tax, these are:

• The heirs
• The donee or beneficiary
• Beneficiaries: In life insurance, as long as the beneficiary is a person other than the person who contracted the insurance.

Diversity of legislation

As we already mentioned in the introduction, although it is the State that establishes how to calculate the ISD tax base, it is the Autonomous Communities, each for its part, that are in charge of calculating the taxable base and determining the rate. applicable. In addition, each Community can modify the reductions and the rates established by the State in a subsidiary manner.

Payment term and bonuses

The inheritance tax is paid within a period of six months, extendable for another six, counting from the death of the deceased. If the payment of the tax is not made in that period, the heirs and/or beneficiaries lose the right to any discounts established by the corresponding Autonomous Community. The ISD is paid in the Community in which the deceased has resided the longest, in the five years prior to the day of death, so the amount to be deposited will depend on the legislation of each Community.

Discriminatory tax treatment

The main consequence of this assignment is that the Inheritance and Gift Tax is not homogeneous for the entire Spanish territory, but rather varies depending on the place where the taxable event occurs. In fact, and as a consequence of this, the European Commission has denounced Spain before the Court of Justice of the European Union (CJEU) for understanding that the existing differences constitute a restriction on the free movement of capital, and may violate the right community.

Judgment of the Court of Justice of the European Union of 9/3/2014

In November 2014, the Law on Inheritance and Gift Tax (ISD) was modified as a result of the ruling of the Court of Justice of the European Union issued in September.

That sentence has been issued in an appeal filed by the European Commission, which had been warning Spain for several years that its Inheritance and Donation Tax regulations violated Community law by hindering the free movement of people and capital.

According to this ruling, the Court understood that within this regulation there was an obstacle to the free movement of people and capital contrary to European Union law. The problem of the case was due to the power that the Autonomous Communities have to establish bonuses and reductions in the ISD quota, by virtue of Law 22/2009.

The Inheritance and Donations Tax is state, and for inheritances or donations between direct relatives it is paid applying a progressive rate from 7.65% to 34%.

However, for inheritances and donations between residents in Spain, the tax is ceded to the Autonomous Communities, which can introduce tax benefits applicable exclusively to their residents, which most of the Autonomous Communities have done.

The problem is that when the heir, the donee or the deceased are non-residents, or it involves the donation of real estate located abroad, the tax is not transferred to any autonomous community and must be paid to the State and applying State regulations, without be able to apply any autonomic advantage.

However, this ruling did not call into question the division of powers between the State and the Autonomous Communities, since it understood that discrimination resulted from the application of the Spanish legal system as a whole, specifically from the legislation that regulates ISD. So we still have a lot to talk about.

The Inheritance and Gift Tax, a throwing weapon of politicians

The Inheritance and Gift Tax is being used as a political weapon by practically all parties. For many, it is a matter of fueling dissension between rich and poor, between workers and capitalists, thus completely ignoring the middle class, the true economic engine of the country.

The fact is that it is still not clear what is going to happen with the ISD, if there will be changes or not. In any case, we will continue talking about the evolution of the matter and we will deal, one by one, with the applicable legislation in each Autonomous Community. At the end of the day, one thing is what they say and then what they do -or what they are allowed to do-.

And it is that Benjamin Franklin already said: “In this world there is nothing certain, except death and taxes.”

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