ITCMD Under the Tax Reform: What Changes for Inheritance and Gift Tax
Understand how ITCMD will be affected by the tax reform, which changes await tax lawyers, and how it interacts with CBS/IBS.
Executive Summary
ITCMD (the tax on inheritance and gift transfers) is a state-level tax that was not directly modified by LC 214/2025, but the Tax Reform brings relevant indirect consequences for wealth and estate planning. Vivian Sampaio explains what changes, what stays the same, and how to advise clients in light of the new scenario.
What ITCMD Is and Who Collects It
ITCMD applies to:
- “Causa Mortis” transfers — the transfer of assets upon the death of the owner
- Gifts — the gratuitous transfer of assets or rights, including during one’s lifetime
Jurisdiction: States and the Federal District (state governments).
A recurring problem: Each state has its own legislation, which creates significant distortions, especially in gifts and inheritances involving assets located in different states.
What the Tax Reform Changed (and What It Did Not)
What Did NOT Change
LC 214/2025 did not directly alter:
- ITCMD’s jurisdiction (it remains state-level)
- The nature of the tax (state-level, not absorbed into CBS/IBS)
- The current rates (which vary by state)
- The existing exemptions
What Changed Indirectly
The creation of CBS and IBS alters the price structure of goods and services, which indirectly affects ITCMD:
1. Value of assets in inheritances and gifts
Because CBS / IBS / Selective Tax apply to transactions involving goods and services, the market value of assets may be adjusted. A property acquired after the reform will carry a price that reflects the CBS/IBS paid during construction/sale — and this may alter the ITCMD calculation base.
2. More complex wealth planning
With CBS/IBS in the picture, the ideal structure of family holding companies may change. Assets that were once advantageous to hold through a legal entity may lose their appeal if the total tax burden (IRPJ + CSLL + CBS + IBS) exceeds the management benefit.
3. Possible rate harmonization in the federative debate
There are discussions at the federative level about harmonizing state ITCMD rates, but no bill has yet been approved.
The Current ITCMD Structure — How It Works
Rates
There is no uniform federal rate. Each state sets its own rates. Typical ranges:
Note: Some states have progressive rates based on the value of the transfer; others have a flat rate.
Calculation Base
- Causa Mortis: The market value of the assets on the date the succession opens
- Gift: The market value of the asset or right on the date of the gift
Exemptions
Generally:
- Small amounts of cash (defined by each state)
- Low-value assets
- Gifts to charitable organizations (depending on the state)
Practical Example: Estate Planning with ITCMD
Scenario: Mr. João, 68, owns:
- 1 urban property worth R$ 2,000,000
- A stake in 2 companies (R$ 3,000,000)
- Financial investments: R$ 1,000,000
- Total assets: R$ 6,000,000
Planning options:
Option 1: Lifetime gift with usufruct
- Gifts the property to the children but retains the usufruct (the right to use and enjoy the asset)
- ITCMD applies to the value of the bare ownership (not the total value)
- Upon death, there is no transfer of the property (it has already been transferred)
Current problem: The valuation of the “bare ownership value” versus the “usufruct value” varies enormously between states, generating litigation.
Option 2: Wealth Holding Company
- Sets up a legal entity to hold the assets
- Transfers shares to the heirs through a gift
- ITCMD applies to the value of the shares
Reform impact: If the total tax burden (IRPJ + CSLL + CBS + IBS) on the holding is higher than the burden on an individual, the planning may lose its appeal.
Practical recommendation: Before setting up holding companies, weigh the total cost of maintaining the legal entity (CBS/IBS on revenue, IRPJ/CSLL on distributed profits) against the ITCMD savings.
ITCMD and CBS/IBS — the interaction
One point that deserves attention is the interaction between ITCMD and CBS/IBS.
On acquiring assets during one’s lifetime
If a person acquires an asset and later gifts it:
- On the original purchase: they paid CBS/IBS (at the time, a consumption tax)
- On the gift: ITCMD applies to the current market value — which already includes the CBS/IBS paid
Result: Possible unwanted double taxation — the same asset is taxed first on acquisition (via CBS/IBS) and then on transfer (via ITCMD).
Theoretical discussion: There is doctrinal debate about a possible deduction of the CBS/IBS amount from the ITCMD base, but the matter still depends on express statutory provision.
On “Causa Mortis” succession
Inheriting an asset acquired after the reform means the asset carries the CBS/IBS paid. Again, if there is no crediting or deduction mechanism, there will be economic cumulativity.
Points of Attention for the Tax Lawyer
- Review of existing structures — holding companies set up under the old system may need to be reassessed
- Monitoring state legislation — states may update their ITCMD laws to harmonize with the reform
- Timing of gifts — the earlier the better, but it is necessary to assess whether the cost of holding assets in a legal entity is worthwhile
- Documentation — ensure all asset valuations are well-grounded to avoid assessments
- Off-the-record contracts — the reform may prompt revisions of purchase contracts with retention of title or fiduciary alienation
Predictions for the Future of ITCMD
- Possible federalization of ITCMD (similar to the ICMS federalization proposal of years ago)
- More harmonized rates across states
- A possible mechanism to deduct CBS/IBS from the ITCMD base
- Integration with more structured asset declarations, depending on how the rules evolve
Want to understand how the Tax Reform affects your sector? In /en/napratica, VMAHUB publishes practical guides for businesses. For a personalized analysis of your case, talk to our team: [email protected]
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