There is a method that allows for paying fewer taxes on an inherited property shared among several heirs

Author: Alejandro Perdigones

Source: Tododisca

In an inheritance, numerous assets and patrimony are usually distributed. It is also common for several heirs to inherit a single property, which they must share ownership of. In this situation, the heirs acquire ownership in the form of tenancy in common, as stipulated by the Civil Code.

However, when an inheritance includes a property with multiple heirs, conflicts often arise. The issue is that all heirs must reach a consensus on how to divide or sell the property. This can lead to family disputes over the ownership of the property. Additionally, the heirs must also deal with the taxes associated with inheriting the property.

Regarding this situation, professionals from ‘Idealista’ explain that there are various mechanisms to avoid conflicts among co-owners of an inherited property. An interesting method is dividing the property through the procedure of segregation.

Segregation of an Inherited Property

Segregation is a process that separates the original inherited property into one or more equal parts. Thus, the segregated parts of the property become independent properties that can be registered in the Property Registry. Note that this procedure can only be carried out under certain conditions and with the authorization of the Administration.

Regarding the segregation process, Salvador Salcedo, a lawyer at the firm ‘Ático Jurídico’, states that “it should not be confused with division, where the original property is fragmented and disappears, giving rise to several properties that are independently registered.”

As mentioned earlier, the segregation of an inherited property can only be carried out when certain requirements are met. This depends on the characteristics of the property and the regulations of the Autonomous Community.

Taxes in Segregation

On the other hand, ‘Idealista’ warns that the segregation process is subject to the Tax on Documented Legal Acts (AJD). The base applied is the value of the part of the property being segregated. This can save on tax payments, as in a division, taxes are levied on the total value of the property.

It is important to note that there are cases where heirs are exempt from paying the AJD tax in the segregation procedure. According to Salvador Salcedo, this exemption applies “when the procedure is carried out as a necessary preliminary step to simultaneously, in a single act and in the same deed, extinguish the existing tenancy in common over the property, thereby avoiding the AJD tax for both concepts.”

Finally, it is essential to highlight that the extinction of co-ownership does not incur the Tax on Property Transfers (ITP). However, this applies as long as there are no excessive allocations. There is also no need to pay the municipal capital gains tax. Therefore, in certain cases, segregation can be an ideal option to reduce taxes on an inherited property.