Some 19 countries in the European Union impose inheritance, gift, or inheritance taxes. Transfers to next of kin receive very favorable tax treatment, so the majority of your inheritance will be tax-free. The proportion of wealth transfer taxes in total tax revenue is very low.
Inequalities in the distribution of wealth are widespread across Europe. The continent’s richest 10% own a whopping 67% of their wealth, while the bottom half of adults only own 1.2% of their wealth. The role of inheritance, estate, and gift taxes is largely discussed in addressing inequality. Approximately 19 of the 27 EU countries impose wealth transfer taxes. However, only two EU member states, Belgium and France, have income from inheritance, inheritance and gift taxes exceeding 1% of total taxation.
What is inheritance tax?
Inheritance tax is a special form of wealth tax. A net assets tax levied periodically (usually annually) on owned assets. In contrast, wealth transfer taxes are levied when a transfer of wealth occurs, and inheritance and estate taxes are levied only upon the donor’s death.
There is no inheritance tax in eight EU countries.
According to the Tax Foundation, which relies on the Worldwide Estate and Inheritance Tax Guide 2022 and PwC’s Worldwide Tax Summaries, there were no inheritance, inheritance or gift taxes in eight EU countries in 2022. . These include Austria, Cyprus, Estonia, Latvia, Malta, Romania, Slovakia and Sweden. Among the EFTA countries, Norway also has no wealth transfer tax.
Five European countries abolish inheritance tax
Since 2000, five countries have abolished inheritance tax. Austria, Czech Republic, Norway, Slovakia, and Sweden. Estonia and Latvia have never imposed inheritance or inheritance taxes.
Two Nordic countries, two Baltic countries and two Mediterranean island states do not impose inheritance taxes.
According to the OECD’s Inheritance Taxes report dated 2021, inheritance, inheritance and gift taxes have many common design features across Europe.
The majority of countries impose inheritance and gift taxes on the basis of the recipient, but a minority of countries impose inheritance taxes on the basis of the donor. Denmark is the only country in the EU that imposes an inheritance tax on deceased donors. The UK has similar rules.
Most countries give preferential treatment to spouses and lineal descendants through higher tax exemption thresholds and lower tax rates. The most commonly tax-advantaged assets include your primary residence, business assets, pension assets, and life insurance policies.
How do inheritance tax rules and rates compare?
Inheritance tax rules and rates vary depending on the country or region, the value of the inherited property, and the level of closeness between the deceased and beneficiaries’ families.
For example, in France, according to the Tax Foundation, different tax rates apply to transfers to ascendants and descendants, transfers between siblings, blood relatives up to the fourth degree, and everyone else.
There are also big differences in tax rates. Most countries have progressive tax rates, but about one-third have flat rate tax rates, and tax rates vary widely.
In 2022, the top inheritance tax rates ranged from 4% in Croatia to 88% in Spain, depending on region.
Most European countries also have inheritance tax and inheritance tax exemption criteria. These are usually determined by the relationship between the donor and the heir, with exemption thresholds that apply to closer family members being more favorable.
Prices vary widely across Europe, ranging from around 16,000 euros in Belgium to more than 1 million euros in Italy, for example.
In many countries, revenue is less than 1% of total taxes
In some countries, the top rate of inheritance tax exceeds 50%, but in Europe tax revenues from inheritance, inheritance and gift taxes make up only a small proportion of total tax revenues. The share of tax revenue derived from these taxes was less than 1% in 2019, except in Belgium (1.46%) and France (1.36%).
This figure was 0.71% in the UK, 0.58% in Spain, 0.52% in Germany and 0.1% in Italy.
Most real estate is tax exempt
According to the OECD report, the reason that tax revenues from inheritance and inheritance taxes are typically low is because in many countries, a large proportion of estates are tax-free. This is primarily due to the highly favorable tax treatment applicable to transfers to next of kin and the relief provided for the transfer of certain assets. Examples include your primary residence, business and agricultural assets, pension assets, and life insurance policies.
“In many countries, inheritance and inheritance taxes can also be largely avoided through inter vivos gifts due to tax incentives,” the report said.
advertisementOECD report: Inheritance tax strengthens capital
The report also suggested that properly designed inheritance taxes could increase revenue and strengthen capital. “From an equity perspective, inheritance taxes, especially those that target relatively high levels of wealth transfers, can be an important tool for increasing equality of opportunity and reducing wealth concentration.” the report states.
