The Supreme Court has established doctrine on a key issue in the distribution of an inheritance, and that is how the inheritance is taxed when the original heir renounces it. What degree of relationship applies to inheritance tax in these cases? The answer depends, according to the High Court, on whether the will includes a vulgar substitution, that is, an express provision for another person (such as a grandchild) to inherit instead of the one who renounces it. In these cases, the final beneficiary must pay the tax according to his own degree of relationship with the deceased, and not according to that of the family member who renounced it.
This was established in a ruling of October 15 in which he ruled in favor of a minor heir, whose grandmother died in 2016, leaving will. One of his sons, the father of the minor, renounced his share, activating a vulgar substitution in favor of his descendants. The tax administration, however, calculated the tax as if the person who had inherited was the father, applying a higher coefficient (Group II), which raised the fee.
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The key to the case was determining which regulations should be applied, whether the general rules of renunciation or the specific rules of vulgar substitution (more favorable to the final heir). After several appeals, the Supreme Court has settled the issue, if there is a vulgar substitution provided for in the will, the heir is directly the substitute, and his own kinship group must apply, not that of the person who has renounced.
The TSJ considered that the grandson should pay taxes with the father’s coefficients
Initially, the Superior Court of Justice of Asturias validated the administration’s criteria by considering that the father’s resignation activated article 28.1 of the Inheritance and Donation Tax Law, according to which the relationship of the renunciant is taken into account if it is closer than that of the beneficiary. Consequently, the coefficient corresponding to Group II was applied instead of Group I, which reduced the tax credits and generated a quota of 29,792.70 euros.
This criterion was appealed by the minor’s family, who argued that the regulations regarding ordinary substitution should be applied because it was a testamentary provision and not a simple renunciation without further ado.
Since there is vulgar substitution, the grandson has to apply his own degree of kinship
According to the Supreme Court, when the testator establishes a common substitution, the substitute heir directly accesses the inheritance at the will of the deceased. Therefore, the calculation of the inheritance tax must be done according to the relationship of the substitute with the deceased, and not based on the degree of the renouncer. In this case, the application of this criterion meant that the grandson would receive the bonuses corresponding to Group I, for grandchildren under 21 years of age, which implies a much greater reduction than that of group II.
The High Court stressed that the taxable event of the tax occurs with the acceptance by the substitute and that the waiver rules of article 28.1 LISD cannot be automatically applied, unless there is no testamentary provision for substitution. This interpretation, more favorable to the taxpayer, also coincides with the binding consultations V0350-21 and V0012-23 issued by the Tax Administration itself.
For all this, the Supreme Court establishes doctrine:
- If the resignation activates a common substitution provided for in the will, the relationship of the substitute must be applied (art. 26.f LISD and art. 53.1 RISD).
- If there is no ordinary substitution or it does not contemplate the assumption of renunciation, the relationship of the renunciator is applied if it is closer (art. 28.1 LISD and art. 58.1 RISD).