Receiving an inheritance implies that you have to notify the Tax Authority (AT) of the goods received and pay Stamp Duty (when applicable). But, what about in terms of the IRS? Let us see, then, whether to declare inheritance in the IRS and what your other tax obligations are.
Do I have to declare inheritance with the IRS?
No, you do not have to declare the inheritance to the IRS, as the money and goods received are not subject to taxation, as they do not fall within the categories of income provided for in the CIRS.
Although, all income generated through assets received by inheritance will have to be declared to the IRS.
Remember that the IRS is a tax on income obtained in a given year. Therefore, it can only apply on the income generated through this inheritance rather than the inheritance itself.
Thus, if the inheritance generates, for example, agricultural, livestock, forestry, industrial or commercial income, the head of the couple (or administrator of the inheritance) must, when filling out Model 3 of the income declaration, identify, in Annex I, the remaining holders and the share corresponding to them. The results, whether profits or losses, must be reported in Appendix B (Simplified Regime) or Appendix C (Organized Accounting).
Attachments to be completed to declare inheritance income at the IRS
Each heir will also have to complete Annex D with the part of the income that is due to them and that is subject to tax.
In the filling instructions you will understand what to put in each of the tables in this annex. The information to be included concerns, for example, tax losses not deducted during life or tax benefits.
Afterwards, it is also necessary to declare your share of net income, deductions and withholding tax for other categories of income. For example rents (Appendix F), interest (Appendix E) and/or capital gains (Appendix G).
Do I have to declare an inheritance to Finance?
Yes, you must declare the inheritance to the Treasury. The fact of not paying IRS on the inheritance itself does not mean that it does not have to be declared to the Treasury.. Whenever a death involves the transfer of assets, it is mandatory to notify the Tax Authority (AT).
The heritage you inherited and which may be subject to taxation has to be declared to AT. The obligation, in this case, belongs to the head of the couple, that is, to the person who manages the goods until the distribution is made. Notification must be made by the end of the third month following the death of the family member.
Which assets are subject to taxation?
According to the legislation in force, the goods subject to tax are:
- Real estate (whether urban or rustic);
- Movable goods subject to registration (cars, motorcycles, boats and/or tourist aircraft);
- Other movable property (works of art, bank accounts, stocks, copyrights and investment gold).
How should I declare the inheritance to Finance?
Communication is done through the Stamp Duty Model 1 declaration and the respective annexes (namely annexes I and II, regarding the identification of assets and type of heir, respectively. If there are more than four heirs, then you will also have to fill in annex III).
You can request the forms from the Finance services or, if you prefer, print them through the Tax and Customs Authority website. After filling it out, you must hand in the forms and the necessary documentation in person to any Finance service.
What documentation should you enclose?
The Model 1 declaration must be accompanied by the death certificate, NIF and Citizen Card of the deceased and the heirs or beneficiaries, will or deed of donation or justification.
A simple and quick way to deal with all questions related to inheritances is to use the Balcão das Heranças, present in several conservatories throughout the country. The complete list, as well as the contacts, are available at Instituto dos Registos e do Notariado website.
What taxes to pay?
Inheritances are subject to the payment of Stamp duty, in the amount of 10% on the value of taxable goods.
However, if the heirs are the closest family members (spouse or de facto partner, children, grandchildren, parents or grandparents) – the so-called legitimate heirs – then they are exempt from paying the tax. Even so, it is important not to forget, you have to declare the inherited assets to the Tax Authorities.
All other beneficiaries (for example, brothers or nephews of the deceased person) must pay the amount of Stamp Duty due, which is calculated based on the official value of these assets, which must be close to the market value.
For this purpose, in Annex II (item e) of the Model 1 Stamp Tax declaration, the head of the couple will have to identify the type of heir. That is, exempt (legitimate heirs) or subject to taxation (other degrees of kinship).
IMI – Municipal Property Tax
If the inheritance consists of real estate, it is up to the head of the couple to pay the IMI for those properties that are included in the inheritance. Still, it is important not to forget that the tax is due on the inheritance. That is, the heirs will subsequently have to make accounts with the head of the couple.
AIMI – Additional to Municipal Property Tax
Undivided inheritances are also subject to the AIMI if the sum of the Tax Asset Value (VPT) of all properties in the inheritance exceeds 600 thousand euros.
Remember that the AIMI is taxed in three tiers:
- Rate of 0.7% on real estate assets above 600 thousand euros and up to one million euros;
- 1% fee: above one and up to two million euros;
- 1.5% fee: from two million euros.
However, if the head of the couple indicates to the AT the share of the real estate assets of each heir, diluting the assets for each beneficiary, then you can avoid paying the AIMI.
In relation to the procedures, the head of the couple must submit to the AT, electronically, and during the month of March, the Declaration of Confirmation-Heirs of Undivided Inheritance where he identifies the heirs and the respective share, and these must, during the month of April confirm your share, also filling out a Declaration of Confirmation-Heirs of Undivided Inheritance.
Let’s see an example
Let’s assume that the undivided inheritance in question consists of real estate with a VPT of 700 thousand euros. If the head of the couple does not indicate the share of the real estate assets of each heir, the inheritance will have to pay a fee of 0.7% of AIMI on the value above 600 thousand euros, that is, in this case, on 100 thousand euros. The fee to be paid in this case would be 700 euros (100 thousand euros x 0.7%).
If there are three heirs and the head of the couple submits the Declaration of Confirmation-Heirs of Undivided Inheritance to the AT (from 1 to 31 March), then the individual value drops to 233, 33 thousand euros (700 thousand euros divided by three) , thus exempting the installments referring to the share of the inheritance of each of the two heirs.
In April, each of the heirs will, in turn, have to deliver their Declaration of Confirmation-Heirs of Undivided Inheritance, thus confirming their share.
note: If you are an heir, just be careful with the following: for AIMI taxation purposes, the VPT of the buildings corresponding to your share in the undivided inheritance is added to the sum of the VPT of the buildings you already own. Our advice is to simulate each of the scenarios to understand whether or not it is advantageous for the real estate to be taxed within the scope of the inheritance itself or taxed individually.
Article originally produced in July 2019. Last updated in February 2023.
- Finance Portal: Filling Instructions – Annex D