Brazilians Anticipate Real Estate Gifts in Light of Brazil’s Tax Reform

Currently, in many Brazilian states, taxpayers calculate ITCMD based on the municipal assessed value (IPTU value), which is often 30% to 60% lower than the actual market value, depending on the municipality. This already generates litigation, as tax authorities may reassess the declared amount whenever they consider it outdated. The Superior Court of Justice (STJ) has already ruled that tax authorities may determine the ITCMD tax base when the assessed value is lower than the property’s market value. The legal basis for this is not new. The legislation of the State of São Paulo, for example, already provides that, for ITCMD purposes, the assessed value corresponds to the market value of the asset on the date of death or donation. The challenge has always been practical application, with taxpayers frequently using the IPTU value as a shortcut.

What changes with Supplementary Law No. 227/2026 is that this discretionary margin effectively disappears. The law expressly reinforces that the ITCMD tax base must be the market value of the transferred asset or right, effectively ending discussions regarding alternative valuation criteria.

In practical terms, for heirs and donees, this means a taxable base that may be 50%, 80%, or even 100% higher than the amount currently used. Moreover, progressive tax rates will apply to this increased base. The effect is twofold: the tax base increases, and the tax rate increases as well. Taxpayers will feel the impact on both sides of the equation.

2. There are proposals under discussion that would make ITCMD progressive according to the value transferred. How would this affect middle-class families whose wealth is concentrated in real estate but who do not necessarily possess significant financial liquidity?

This is where the most socially sensitive issue arises.

Progressive taxation itself is constitutionally valid. The Federal Supreme Court (STF) has already settled this matter, and from a technical perspective it is defensible under the principle of ability to pay.

The problem is not the principle—it is the mechanics.

ITCMD is a tax on assets, not income, and real estate is not a highly liquid asset.

A middle-class family inheriting their parents’ apartment often does not have R$30,000, R$50,000, or R$80,000 readily available to pay the tax. As a result, they may be forced to sell the inherited property, dispose of a portion of it, or rely on installment payment programs (when available) merely to complete the transfer registration before the Land Registry Office.

With market value replacing assessed value and progressive tax brackets being adopted, the mismatch between “wealth on paper” and “available cash” is likely to increase, especially among families with assets ranging from approximately R$2 million to R$5 million concentrated in one or two properties, but without sufficient financial investments to cover the corresponding tax burden.

Families with substantially larger fortunes generally possess either the liquidity or planning structures necessary to absorb the impact.

3. From a tax perspective, what is the practical difference between receiving a property through inheritance and receiving the same property as an inter vivos gift? In which scenarios would each option be more financially advantageous?

Generally speaking, transferring property through an inter vivos gift may be financially advantageous, depending on state legislation.

Several Brazilian states already impose lower ITCMD rates on gifts than on inheritances, encouraging the anticipation of succession planning.

In Mato Grosso do Sul, for example, gifts are taxed at 3%, compared to 6% on inheritance transfers (causa mortis). The state has also recently granted a 30% discount for lump-sum payment of ITCD on gifts, increasing the practical advantage of this strategy.

Where this tax-rate distinction exists, it alone may provide a strong incentive to transfer assets in advance.

In addition to tax rates, three other variables influence the decision regardless of the jurisdiction:

Making a lifetime gift locks in the taxable value on the date of transfer.

If the property is expected to appreciate, transferring it in advance prevents future appreciation from becoming part of the heir’s taxable base, a factor that becomes even more significant when market value becomes the standard reference.

If the donor transfers the property at a value higher than its acquisition cost, individual income tax may apply to the capital gain.

Alternatively, the transfer may occur using the historical tax basis reported in the donor’s tax return. In that case, no capital gain is recognized immediately, but the donee inherits the original acquisition cost, which will affect future taxation if the property is sold.

The most common strategy is a gift with reservation of usufruct.

This structure combines tax planning with continued control. Bare ownership is transferred to heirs, thereby anticipating taxation and fixing the taxable value, while the donor retains use, enjoyment, and, if desired, income derived from the asset until death.

From a financial standpoint, lifetime gifting tends to be advantageous when:

• the asset is likely to appreciate significantly;
• the state gift tax rate is lower than the inheritance tax rate;
• the family has already defined how assets will be distributed and wishes to avoid probate proceedings and their associated costs;
• sufficient liquidity exists to pay the tax currently.

Waiting for succession through inheritance may be more appropriate when the donor still depends economically on the asset or when uncertainty remains regarding the ultimate distribution among heirs.

4. Family holding companies have been presented by some specialists as a means of reducing succession-related tax burdens. Is this structure truly accessible to middle-income families or is it limited to high-net-worth estates?

The honest answer is: it depends on scale.

There is no official minimum threshold, but the market generally agrees on a practical break-even point. Family holding structures tend to become advantageous when the family owns approximately R$5 million or more in assets.

Below that level, the recurring costs associated with maintaining the structure—such as accounting, ancillary obligations, governance requirements, and compliance—often outweigh the tax and succession-planning benefits.

Consequently, holding companies typically do not generate significant advantages where family wealth is modest, uncomplicated, or where family members are not willing to bear the ongoing complexity inherent in maintaining a corporate structure.

For such situations, simpler alternatives—such as lifetime gifts with reserved usufruct or a well-planned probate process—often produce similar results at considerably lower cost and complexity.

It is important to emphasize that a holding company is not a magical tax-saving vehicle.

The donation of shares to heirs is also subject to ITCMD, and the transfer of real estate to the holding company may trigger ITBI (Real Estate Transfer Tax), particularly given the position adopted by some municipalities and the understanding that constitutional immunity for capital contributions generally does not apply where the company’s predominant activity is real estate.

In other words, a holding company can organize, professionalize, and potentially defer or optimize taxation over time, but it does not eliminate ITCMD. Moreover, the new market-value criterion will directly affect the valuation of the holding company’s equity interests as well.

5. Considering ongoing tax reform discussions, how real is the risk that ITCMD may become substantially more burdensome in the coming years, and what legitimate tax-planning strategies may families adopt today?

The risk is not hypothetical.

It is a structural trend that is already underway.

Among Brazil’s 27 states and the Federal District, only eight still maintain fixed ITCMD rates without a progressive tax structure. This means that the majority of jurisdictions are already moving—or have already moved—toward the mandatory progressive system established by Supplementary Law No. 227/2026.

Even states that already apply progressive taxation will need to adapt their legislation to other aspects of the new supplementary law, including valuation criteria for shares and equity interests, rules on successive gifts, taxation of foreign assets, and trust-like arrangements.

São Paulo, Brazil’s largest economic center, already has pending legislation intended to adopt progressive ITCMD rates.

The good news—and where the real opportunity lies—is that, due to the constitutional principle of prior annuality, these changes generally cannot produce effects before 2027 if they increase the tax burden.

This creates a meaningful planning window during 2026 for families to:

• Advance gifts and corporate reorganizations under current state legislation, using currently applicable rates and valuation criteria, provided they have genuine economic substance;
• Review existing family holding structures, evaluating whether current corporate arrangements remain efficient under a market-value regime;
• Obtain professional valuations of assets and ownership interests now, documenting market value at the moment of transfer, which is increasingly becoming the main instrument of tax defense;
• Closely monitor state-level legislation, since Supplementary Law No. 227/2026 establishes general rules while each state remains responsible for implementing specific thresholds, tax brackets, deadlines, and rules concerning successive gifts.

In this context, legitimate planning is not about avoiding the taxable event.

Instead, it consists of anticipating decisions that families will likely make anyway, while taking advantage of the current legislative landscape before it changes.