The death of a relative is always a delicate issue that demands a lot of attention, as bureaucracy and several documents, proceedings, and deadlines must be dealt with as a consequence of someone’s passing. Even more so when it comes to inheritance tax in Brazil.
Some people believe that, after the death of a relative, the heirs are automatically entitled to all the property left by this relative, but some legal requirements must be fulfilled before this happens.
One such requirement is the payment of inheritance tax, which must be made by the heirs, and, in Brazil, it is named ITCMD (Imposto sobre transmissão causa mortis e doação).
In this text, we are going to explain how the inheritance tax works in Brazil, the low rate of this tax around here, and whether it is worth bringing your property to Brazil.
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Author: Lucas Gomes Furtado
Inheritance tax rate of 8%: is it advantageous for someone to bring their property to Brazil?
As it was mentioned before, ITCMD is nothing more than the inheritance tax which must be paid by the heirs after the death of a person, at the start of the inventory proceeding.
In Brazil, this tax is calculated on the market value of the property, and the percentage changes from state to state, but it must be from 0% (in specific situations of exemption) and 8%, which is the limit established by Brazilian legislation.
At first, for many Brazilians, the tax rate limit of 8% may seem like a high percentage of inheritance tax, but it is actually considered low in comparison to many other countries.
For instance, in some well-known countries such as Belgium, France, and Japan, inheritance tax rates can reach 80%, 60%, and 55%, respectively.
Because of this, the Brazilian inheritance tax rate limit may be seen as an incentive for someone to have their family succession inside Brazilian territory.
Therefore, it can be interesting for a foreigner or for a Brazilian who owns property abroad to bring this property to Brazil, with the intention of planning their succession in accordance with Brazilian law.
How is each inheritance share divided?
When a person dies, their heirs are each entitled to a specific share of their property, which is called “quinhão” by the legislation.
However, each share is not always equal, which means that some heirs may inherit more than others, as an order of preference has been established by law and must be followed by the heirs.
Similarly, depending on the case, not all possible heirs are going to receive a share, also because of the same order of preference, which may exclude more distant relatives from inheriting anything.
In general notes, Brazilian law has determined that the following order must be followed:
- a) The descendants, alongside the surviving spouse, depending on the matrimonial regime chosen for the marriage;
- b) The ancestors, alongside the surviving spouse;
- c) The surviving spouse;
- d) Collateral relatives.
It’s possible to notice that the descendants – the children, grandchildren, and great-grandchildren of the deceased – have the preference to inherit, followed by the ancestors, such as parents, grandparents, and so on.
When it comes to the surviving spouse, the matrimonial regime will determine whether they will inherit or not.
For example, if the surviving spouse and the deceased person married under separation of property or partnership of acquests, they will inherit alongside the descendants.
However, if the matrimonial regime is partial community property, it’s necessary that there is particular property from the deceased in order for the surviving spouse to inherit along with the descendants.
Finally, the collateral relatives will only be entitled to inherit if there are no surviving descendants, ascendants, or spouses. The order is siblings, nephews and nieces, uncles and aunts, and cousins, and the closest ones exclude the most remote ones.
How is the transfer of money after death in Brazil?
When we speak about the transfer of goods from a deceased person, we usually think first about movable and immovable goods, such as a car or a house, for instance.
Nevertheless, it’s also common for people to leave a specific amount in a bank account or financial applications. In this scenario, is this amount also going to be passed to the heirs?
Yes, this money must also be mentioned in the inventory proceeding as it’s considered a part of the property of the deceased, and, at the end of the proceeding, it will be released to the heirs after the inventory is complete.
The release of this amount usually happens through a judge’s order, if it’s a judicial proceeding, or through the actual inventory deed, both of which have the power to allow the collection of this money at financial institutions.
Also, in general, bank deposits and financial applications are usually exempt from ITCMD as long as they do not exceed a specific limit, which varies among each federative state.
As it has been mentioned, however, each state has distinct laws in regard to how ITCMD is charged, and it is essential that the people interested in this subject seek information about the specific laws in that state.
How is the transfer of private pension money after death?
Now, let’s suppose that the deceased person has left an amount of money in a private pension plan. How must the transfer of this money be done? as is the inheritance tax in Brazil?
Generally, money related to a private pension plan is not considered part of the inheritance, which means that it does not necessarily need to be included in the inventory, as it is similar in nature to life insurance.
Accordingly, most Brazilian states do not charge ITCMD on money left in private pension plans. However, it is important to remember that these rules are not absolute and may change according to each federative state.
If there is no need to include it in the inventory, this money will be divided among the beneficiaries in the exact way that the pension holder decided while alive, irrespective of whether they are legal heirs or not.
This division can also happen while the inventory proceeding is still ongoing, as it is not necessary for the beneficiaries to wait for the end of the inventory in order to ask for this money.
Therefore, when we talk about private pensions, the holder can freely choose whomever they wish as the beneficiaries of this amount of money, which will be divided among them after the death of the holder.
This happens because, as opposed to what happens with inheritance, private pensions do not follow any order of preference and the division of money must only follow the wishes of the deceased holder.
What about fixed-income investments?
Contrary to private pensions, any money left and related to fixed-income investments must be included in the inventory proceeding of the deceased investor.
When this happens, broke dealers normally block the account as soon as they find out about the death of the investor, preventing new movements from happening to protect the money.
Despite the block, any amount of money in that account will keep returning for the whole course of the inventory proceeding, and any dividends or titles from this period will also remain in the account.
Because it is included in the proceeding, this money will only be received by the heirs after its conclusion, or, if they wish, they may opt for the ownership transfer.
This type of investment can be interesting from the perspective of the high basic interest rate in Brazil, which is named “taxa Selic”, and it usually attracts new investors every year.
From 2022 to the present moment, the Selic interest rate has been maintained at 13.75% a year.
Also, the rentability of fixed-income investments tends to be attractive to investors even in the short term, especially in comparison to variable income, in which one cannot foresee the rentability of their assets.
Therefore, fixed-income investments may be a good alternative for anyone who seeks rentability in a relatively fast way, and that can also be transferred to their heirs after the death of the investor.
How does the extrajudicial inventory proceeding work?
When we speak of starting an inventory proceeding of the property of a deceased person, it does not mean that it will be a complex and everlasting process: it mainly depends on the number of goods, heirs, and the relationship among them.
That is because this inventory can be made judicially or extrajudicially.
In the first option, the inventory must be started through a lawsuit in court, where the judge is going to decide about the division of the property of the deceased at the end of the proceeding.
In the second option, the inventory can be done in a notary office through a public deed by gathering documents related to the deceased person and by paying notary fees.
This last type of inventory has been created with the intention of simplifying and facilitating the process. It can be done in certain situations, as long as the following requirements are present:
- all heirs must be over eighteen years of age and not incapacitated;
- there must be an agreement among the heirs in regard to the division of property, with no disagreements;
- there must be no will left by the deceased.
Thus, the extrajudicial inventory offers many advantages in comparison to the judicial inventory.
The first one is the agility of the process, since there is a previous agreement among the heirs as to how the division of the property will happen, and it can be finished in weeks or months, much quicker than the average judicial lawsuit.
Besides that, the notary fees are much cheaper than most costs that are involved in a judicial lawsuit, where hearings and other diligences are common before its conclusion, e.r the inheritance tax in Brazil.
Also, it’s relevant to mention that the extrajudicial inventory can be done in any notary office around the country, regardless of where the property is located and where the heirs live.
Finally, it is possible to notice that the extrajudicial inventory may be a great tool for the heirs to save time and money and also to finish this bureaucratic process in a quicker way.