The Supreme Court, in its judgments numbers 1112/2020 of July 23, 2020, 1113/2020 of July 23, 2020 and 1248/2020 of October 1, 2020, resolved that, in the cases of commutation of the widow's usufruct by property in freehold, and when it had not been provided for in the will, a transferring act of ownership was carried out at the will of the parties and not of the testator, and which, as such, had to be taxed independently.
As a result of these judgments, which referred to cases subject to Catalan law, numerous questions arose about their application in common law.
Recently, the General Directorate of Taxes (DGT), in its Consultation V0297-21, of February 18, 2021, has clarified that the doctrine established by the Supreme Court is applicable to inheritances subject to common law. So that, according to the criteria of the DGT, in the cases of commutation of the widow's usufruct for property in freehold, we can find ourselves in two different situations, depending on whether or not it has been foreseen in the will:
- In the cases in which the commutation of the usufruct occurs as a consequence of an imposition or express authorization of the testator, the award of property in freehold to the surviving spouse will not be carried out by the will of the parties, but will be carried out by the will of the testator , and, consequently, there will not be two different legal businesses that must be taxed independently.
- On the contrary, in the cases in which the will does not foresee the commutation of the widow's usufruct, the adjudication of assets in freehold to the widowed spouse, agreed between the latter and the heirs, will not be produced by the will of the deceased, but will be carried out by will of the parties, giving rise to a legal business other than that of the acquisition of the inheritance, which, therefore, must be taxed separately.
According to the criteria of the Supreme Court in the aforementioned judgments of July 2020, in the event of a commutation not foreseen by the testator, in addition to the corresponding taxation for the Inheritance and Donations Tax (ISD), the parties must pay the Transfer Tax patrimonial and documented Legal Acts (ITPAJD), by way of exchange.
In our opinion, the widowed spouse should pay for the acquisition of bare property through the modality of onerous patrimonial transfers (TPO) and the heirs, for the acquisition of the usufruct according to the rules of article 42 of the ITPAJD Regulations, is that is, entering the higher of the installments between the corresponding liquidation for the extinction of the usufruct in accordance with the ISD regulations or the corresponding liquidation according to the swap tax (TPO modality at the tax rate approved by each CCAA).
Therefore, and in accordance with the foregoing, now more than ever, proper inheritance planning is necessary from the moment the will is signed.
The professional criterion, which we have been applying in our office in recent months, is to recommend to our clients that in their wills they authorize the surviving spouse to commute his widow's usufruct for the adjudication of property in freehold, which will prevent his heirs from having to face a higher tax cost for the acquisition of the deceased's assets.
Marta Gallo Gonzalez
A lawyer. Tomarial Tax Area
