Taxes are levied on the increase in the heir’s wealth, and they differ depending on each situation.
Source: elEconomista.es

The death of a family member or a very close relative is, for obvious reasons, a traumatic moment that is also filled with paperwork that we must handle when we might be distracted or preoccupied with other matters.

That is why, when the time comes, we must be aware of the need to complete certain formalities if, for example, the deceased leaves us an inheritance. Receiving inherited assets or resources involves certain obligations, such as paying specific taxes.

Why must you pay taxes when you receive an inheritance? A taxpayer might think it’s unfair because, after all, it’s a decision over which they have no control (such as someone deciding to leave them part of their inheritance upon death). However, the explanation is logical and irrefutable: any increase in a person’s wealth is taxable.

Not all circumstances are the same, as the taxes payable when receiving an inheritance will depend on what the taxpayer inherits. The BBVA Pension Institute has explained on its website the taxes that may need to be paid when receiving an inheritance:

Inheritance Tax
This is straightforward: it is mandatory to pay it to receive the inheritance, as it taxes the increase in the taxpayer’s wealth when they benefit from it. This is an autonomous tax, so its amount will depend on the region where the heir resides.

Personal Income Tax (IRPF)
The Personal Income Tax is involved in three situations:

• If you inherit shares or investment funds and then sell them, you will be taxed as a capital gain. Here, you must consider the purchase amount plus the amount paid as Inheritance Tax.

• If you inherit pension plans or provident plans, you only need to declare them if you decide to cash them in. If so, they will be considered employment income.

• If you inherit life insurance through a spouse in a community property regime, you must declare capital gains for half of the insurance amount.

Gift Tax
This tax must be paid when a person inherits life insurance subscribed by another person who left their children as beneficiaries in the event of the spouse’s death.

Capital Gains Tax (Plusvalía)
This municipal tax (managed by local councils) considers the change in the value of the inherited property over the last 20 years.