ITCMD: Changes and Strategies for Succession Planning

With the enactment of Constitutional Amendment No. 132 in December 2023, the ITCMD, the Tax on Causa Mortis Transfers and Donations, which is levied in cases of non-costly transfers, such as inheritances or donations, brought about significant changes.

What has changed? It established the obligation to use progressive tax rates based on the value of the transfer or donation. Therefore, with this change, the higher the value of the assets being inherited or donated, the higher the applicable rate.

Some states already provided for the use of progressive rates according to the value of the asset, such as Santa Catarina and Rio de Janeiro. On the other hand, other states, such as São Paulo and Minas Gerais, apply rates of 4% and 5% (respectively) to calculate the tax due, regardless of the value of the asset or right transferred. In São Paulo, a bill has been presented proposing the adoption of percentages of 2% to 8% on ranges varying from 10,000 Ufesps (R$ 353,600) to 280,000 Ufesps (R$ 9,900,800.01) - however, any approval of the bill will only be applied in the year following its approval and after a period of 90 days from its publication.

Strategies in focus: Families should take advantage of the period before the change to form structures that ensure, if possible, the rates currently in force.

The donation contract, for example, has emerged as a key tool, allowing transfers of assets or advantages from one person to another by mere liberality, allowing a series of benefits from both a tax and inheritance point of view.

Any donation contract signed before the entry into force of the state law that absorbs the tax reform will be subject to the current rules. This situation will necessarily remain throughout 2024, due to the constitutional principles mentioned above (next year + ninety days).

In addition, the use of clauses restricting assets, such as incommunicability, inalienability, impenetrability and reversion may further increase the potential of the donation as an instrument for protecting assets.

What to expect in 2024? The implementation of the changes proposed by the tax reform must be monitored, but this year offers an opportunity to evaluate and adopt succession planning strategies before the new rules come into force.