Sale of property following an inheritance tax reduction for family businesses.

Directorate General of Taxes (DGT). Binding Consultation V1236-22, of 31 May 2022.

The case in hand analyses a case in which the deceased dies intestate with an economic activity of renting property with 26 properties assigned to the business. The business was exempt from wealth tax. The applicant and his four siblings applied the 95% reduction equally, each of them being awarded lots of properties.

The DGT clarifies the consequences of not continuing to carry out the economic activity of renting out the properties, the sale of such properties and the non-compliance with the requirement to maintain the value of the acquired properties within their assets.

The Law requires the maintenance of the value of assets at which the tax reduction was applied during the ten-year period established as from the death of the deceased, prohibiting the carrying out of acts of disposal and corporate operations which, directly or indirectly, could lead to a substantial reduction in the value of the acquisition.

In accordance with binding consultation V2720-18 and the Supreme Court ruling of 2 June 2021, the maintenance requirement of article 20.2.c) of the LISD does not require the continuity of the activity but rather the maintenance of the acquisition value on which the reduction was made, with the possibility of reinvestment in real estate, shares, investment funds, bank deposits or other assets or financial products deemed appropriate. Therefore, provided that such maintenance can be proven, real property may be sold.

With regard to the implications of non-compliance with the maintenance of the investment by one of the heirs, two scenarios are laid out:

1. Where the testator had foreseen in his will express or individualised awards of real properties for each heir in which the tax reduction for family business would operate independently for each of them, so that non-compliance with the maintenance requirement for one co-heir would not affect the rest.

2. In those cases where the will provides that they inherit in proindiviso or where there is no will, as in the case in question, a “group of heirs” is formed and non-compliance by one of them with the requirement of permanence would entail the loss of the tax reduction for all of them and they would have to pay the part of the tax that had not been paid as a consequence of the reduction applied and the interest for late payment.