Inheritance with the benefit of inventory: tax perspective

From the moment of a person's death until succession takes place, the inheritance (set of assets, rights, and obligations or debts of the deceased) that may exist constitutes an autonomous and independent estate.

It may happen that the inheritable debts and obligations exceed the assets and rights to be received. Unfortunately, since our legal system considers the estate as a whole, it is not possible to accept the inheritable assets and reject the debts. Therefore, two possibilities could be considered: repudiating the inheritance, an option currently chosen by one in ten Spaniards, or accepting it with the benefit of inventory, which would allow the heir to deliberate and subsequently accept or renounce the inheritance.

An inheritance subject to inventory constitutes separate assets that remain under administration. These assets are frozen in their entirety, including tax assets, and inheritance tax is not payable.

Once the administration is complete, it may be that the inherited assets are not sufficient to cover the payment of debts, in which case the inherited estate will be deemed insolvent. However, there may also be a surplus that would pass to the heir, bringing an end to the separation of assets.

The heir under benefit of inventory limits their liability, as they will only be liable for the debts of the estate to the extent of the assets contained therein, never with their personal assets.

On the other hand, three taxes would apply to the inheritance accepted under benefit of inventory:

• Inheritance Tax: As mentioned above, inheritance tax is not payable until the administration has been completed.
• Value Added Tax: For example, if the administrator has to deal with invoices subject to VAT relating to services provided to the estate, or if the estate includes a business whose activity is subject to and not exempt from VAT, in which case it will be liable for taxation.
• Personal Income Tax: For example, if a professional provides services to the estate on which this tax must be withheld.

Probably due to the economic crisis in Spain, in recent years the possibility of accepting an inheritance with the benefit of inventory has become particularly relevant. However, Spanish tax regulations barely mention this concept, and the Directorate-General for Taxation has not explored it in depth in its responses to binding consultations.