Jorge Quiroz’s team is considering reducing, for a limited period, the rate of the donation and inheritance tax, which currently taxes amounts above CLP 1 billion at 25%. This would allow bringing forward resources in times of weakness in public finances.
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The government of José Antonio Kast is preparing a set of tax changes that were outlined during the campaign and after the election victory. The tax reform proposal already has a defined timeline, according to the Minister of Finance, Jorge Quiroz: the bill would be submitted on April 1.
The reform will include a series of measures: the most relevant is the reduction of the corporate tax rate from 27% to 23% for medium and large companies, a cut that will be gradual over the four years of the administration. The proposal will also include an additional reduction to an average of 20% for companies that hire workers at risk of falling into informality, through a tax credit associated with salary payments with social security contributions, according to Kast’s government program from last year.
Other measures included in the design were the elimination of capital gains tax on the sale of shares and a return to an integrated tax system, as well as the elimination of property tax payments for senior citizens.
However, another measure has come into the radar of the new authorities and has tax implications: a temporary reduction in the donation and inheritance tax rate.
The law establishes that donations and inheritances are taxed at a progressive rate, with a maximum of 25% for amounts exceeding 1,200 Annual Tax Units, approximately CLP 1 billion.
One option under analysis is to temporarily reduce— for example, for one year— that rate to a level that would be attractive for taxpayers who want to donate part of their wealth to their heirs or anticipate the payment of inheritance taxes, after their death, with a significant discount.
Whether through donations or inheritances, the tax effect is the same, but the consequences differ. For example, if an entrepreneur wants to transfer their company to their heirs during their lifetime, they could donate it by paying a rate lower than 25%, but the transfer of ownership is immediate. In the case of anticipating part or all of the inheritance tax based on the current value of the asset, the transfer of ownership occurs after death.
With a measure like this, the government could bring forward future revenues and partially reduce the weaknesses in public finances. Similar transformations have been implemented before, offering temporary windows to repatriate capital from abroad or to anticipate withdrawals from FUT (Taxable Profits Fund), with more attractive rates than those in force, as an incentive for early payment.
Years ago, a proposal of this kind was presented to former President Sebastián Piñera by corporate lawyer Gerardo Varela, who also presented it to then-presidential candidate Evelyn Matthei last year.
Incentive for high-net-worth individuals
Lawyer Loreto Pelegri, tax partner at PwC, has heard about this alternative. “What I understand the government intends is to propose a window, similar to what has been done with income tax for shareholders and ultimate partners, so that the rate is lower and encourages revenue collection,” she says.
Pelegri recalls that in Chile, inheritance and donation tax applies to the transfer of assets when a person dies or donates part of their wealth. “The problem is that the law treats companies the same as any other asset, as if they were liquid assets or financial investments, without considering that they are often operating businesses that generate employment and economic activity. Unlike what happens in many developed countries, Chile does not have a special regime that facilitates the continuity of family businesses during generational transitions. The tax is calculated based on the market value of the company and is triggered upon the owner’s death, which may force the sale of part of the business, incur debt, or divest assets to pay the tax,” she explains.
Unlike Chile, Pelegri adds, in countries such as Germany, France, Spain, or the United Kingdom, tax systems recognize that a company is a productive unit and not just a patrimonial asset. “Therefore, there are exemptions or significant reductions in inheritance tax when certain conditions are met, such as maintaining operations, preserving employment, or not selling the company for a specified period. The explicit goal is to prevent the tax from destroying viable businesses,” she says.
For this reason, she believes that a measure like this could “serve as an incentive for high-net-worth individuals and family businesses.” “It would be positive if we aim to preserve employment and promote economic growth, especially for ongoing businesses, so they do not have to sell or liquidate assets to pay the tax. It could also be allocated to reconstruction purposes, as occurred with the most recent window created by Law No. 21,681, aimed at financing the reconstruction of the Valparaíso Region after the mega-fires,” she says, referring to the 12% substitute tax on withdrawals of taxable profits in 2024.
Former Director of the Internal Revenue Service, Michel Jorratt, also analyzes the purpose of such a measure, raising concerns. “I imagine this is a measure aimed at raising revenue today at the expense of lower revenue in the future. Clearly, it is a regressive measure, since the average person does not pay this tax. The 25% rate only applies when a person receives a donation or inheritance exceeding CLP 1 billion,” he notes. “Conceptually, donations and inheritances are income for the recipient, who should pay income tax. However, for historical reasons, many countries tax them with a special tax at lower rates, as is the case with Chile’s inheritance and donation tax,” he adds.
Another former authority disagrees with the initiative. “As a policy, it is very poor. It is equivalent to debt with a huge implicit interest rate,” they argue. Moreover, the amounts are not that high: according to SII figures, inheritance and donation tax collected just over CLP 58 billion in 2024, and its highest level in recent years was in 2022, with CLP 310 billion, representing 0.6% of the country’s total tax revenue.
Francisco Saffie, former advisor to the Ministry of Finance and a tax expert, states that “considering that this is a tax that is rarely paid, the measure could indeed incentivize early payment. However, the revenue effect is difficult to estimate, as it would require determining elasticities, considering existing structures that were designed to avoid paying the tax, understanding the details of the brackets to be modified, and other relevant variables.”
Javier Jaque, Managing Partner of CCL Auditores Consultores, believes that “if there is an incentive to advance inheritance tax payments with a reduced rate, many high-net-worth individuals will take advantage of the opportunity to donate in order to achieve tax savings. It will function very similarly to capital repatriation.” However, he warns that by bringing forward future revenues, “there will be greater fiscal pressure in the coming years, which will lead to the need to consider new tax increases.”