The Brazilian Supreme Court (STF) ruled that “The imposition of the Tax on Inheritance and Donations (ITCMD) is unconstitutional with respect to the transfer, to beneficiaries, of amounts and rights related to the Life Generator of Benefits - Vida Gerador de Benefício Livre (VGBL) or Plan Generator of Benefits - Plano Gerador de Benefício Livre (PGBL) plans in the event of the plan holder’s death.” (Theme 1,214, Appeal - 1,363,013)
VGBL and PGBL are widely used financial instruments classified as private supplementary pension plans, allowing free investment, portability, and withdrawal. However, upon the death of the plan holder and the receipt of accumulated amounts by surviving beneficiaries, these pension instruments acquire the nature of life insurance and therefore cannot be considered part of the estate for any purpose, as provided for in Article 794 of the Civil Code. Since they do not form part of the estate, these amounts are not subject to ITCMD.
This understanding was further reinforced by Law No. 15,040 of December 9, 2024, in Article 116 where life insurance does not form part of the estate, explicitly stating in its sole paragraph that “the death-risk coverage of pension plan participants is to be treated as equivalent to life insurance.”
In addition to the non-incidence of ITCMD—that has rates which range from 2% to 8% and may increase in the coming years due to the progressivity of this tax as defined by the Tax Reform—VGBL and PGBL plans are also subject to Individual Income Tax (IRPF) at potentially advantageous rates, dropping to as low as 10% for investments held for more than 10 years. Thus, they represent an effective tax and succession-planning tool, and consulting a professional to assist in implementing this strategy is advisable.
The STF’s unanimous decision brings an end to a long-standing dispute within the Judiciary on this matter. For many years, state tax authorities and State Courts of Justice held divergent views regarding the incidence of ITCMD in these situations. There were even cases in which VGBL was exempted from taxation while PGBL was not, as occurred in the State of Rio de Janeiro.
The case law of the Superior Court of Justice (STJ) had already been trending toward recognizing the non-incidence of ITCMD in such situations, but with the STF’s recent ruling, the matter has now been definitively settled, and compliance becomes mandatory for all courts in the country, given that the judgment was issued under the general-repercussion system.
Therefore, with the STF’s decision, taxpayers who received VGBL or PGBL amounts due to the death of the plan holder are entitled to seek reimbursement of ITCMD paid on such receipts over the past five (5) years.