We also mentioned this in our article at the beginning of December last year Don't forget the interest on your debt recognition.
Paying the actual amount
And we’re not saying this for no reason! The Arnhem-Leeuwarden Court of Appeal recently confirmed this in a ruling Yet again. Where interest on acknowledgement of debt has not actually been paid, these amounts are included in the estate for the purposes of inheritance tax.
The case concerned a father who died in 2013. His sole heir was his son, to whom he had made gifts between 2004 and 2011. These gifts had not been paid to the son. The father had acknowledged that he owed them.
All of this was duly recorded in notarial deeds. And those deeds stipulated that, in respect of the 2004 gift, Father had to pay 5% interest each year, and 6% in respect of the gifts made in the other years.
The Tax and Customs Administration calculated the total interest due at €15,442. The son was able to demonstrate that his father had paid him a total of €10,371 in interest.
That was, in fact, more than the interest due on the acknowledgements of debt for the years up to and including 2008. However, as the interest payments could not be reconciled, the Court ruled that the acknowledgements of debt for all years had to be taken into account when calculating the inheritance tax.
Evidence
Heirs must be able to prove that, at the time of death, all interest on each acknowledgement of debt had actually been paid. To do so, they must provide the Tax and Customs Administration with bank statements showing the interest payments or receipts. It is therefore a good idea to keep these bank statements each year.
If it transpires that not all the interest has been paid, this can be rectified. However, the donor must still be alive for this to be possible. The interest must then actually be paid. And, of course, interest must be charged on the overdue interest.