Tax reform: expected increase in inheritance or donation tax in 10 states

The text of the reform proposes that the tax be progressive throughout the country, based on the value of assets. States that have not yet adopted this model will have to adjust their legislation.

The tax reform relating to consumption, approved and in force since last year by the National Congress, may result in an increase in the tax on inheritances or donations, known as ITCMD or ITCD, in ten Brazilian states. This is due to the fact that the text of the reform establishes the progressiveness of the tax. Thus, throughout the national territory, rates will increase, varying according to the value of the assets transmitted. Most states already apply progressive taxes, with higher rates for higher assets. However, in ten states, the rate is still fixed and, with the reform, it will have to be adjusted to comply with the new standard. These states are: Alagoas, Amapá, Amazonas, Espírito Santo, Mato Grosso do Sul, Minas Gerais, Paraná, Rio Grande do Norte, Roraima, and São Paulo.

The ITCMD is a state tax that is levied on the market value of assets or rights, such as real estate, vehicles, shares and money, when they are transmitted to heirs upon death or through donations during life. Currently, inheritance tax has a limit of 8%, determined by the Federal Senate, but there is a proposal under discussion to increase it to up to 16%. The rates for inheritances may differ from those applied to donations, according to the legislation of each state. In Rio de Janeiro, for example, in 2017, the state of increased the tax limit on inheritances and donations to 8%.

Advance payment by taxpayers:

While new state tax laws are not approved, taxpayers have sought to anticipate payment at lower rates before the possible increase. There has already been a significant increase in queries about succession planning at the start of this year. The expectation is that the new rules on the Mortis and Donation Transmission Tax will come into effect from 2025. Today, the tax, which is statewide, has rates that vary between 2% and 8%. With the reform, the amount to be collected may double, depending on the federation unit and the value of the assets.

International comparison:

Inheritance tax rates in Brazil vary from 1% to 8%, depending on the state. In other countries, the limits are significantly higher. In the United States, for example, it can reach 40%; in Germany, 50%; and in France, 60%. However, in Brazil, in addition to the ITCMD, other costs may apply, such as court fees, legal fees, capital gains tax, among others, which can result in a total rate of up to 37% for heirs.

Other changes in the tax reform: In addition to the progressiveness of the tax on inheritance or donations, the tax reform also established other changes in the tax: The ITCMD will be charged in the state of domicile of the deceased or the donor of movable assets, titles or credits. Previously, taxation occurred in the state where the inventory or division of assets occurred. The new rule aims to prevent heirs from seeking states with lower taxes to carry out the inventory.

Rules for collecting inheritances abroad were defined, taking into account the domicile of the heir or beneficiary. Transmissions and donations to non-profit institutions are exempt from tax.

Solutions

One of the ways to legally reduce taxes is to invest in pension or insurance plans. The advantages of private pension plans are the fact that they do not go into probate when their holder dies. Thus, the resources invested in PGBL and VGBL are transmitted to the beneficiaries of these plans automatically, without bureaucracy.

This happens because private pension is considered a product of a security nature, that is, with insurance characteristics, a type of product that, by law, does not go through inventory.

If you have any questions about inheritance or donations, or if you are thinking about carrying out succession planning, look for a specialized lawyer.