The amount of inheritance tax you have to pay depends on how close your family relationship is to the deceased.
Bloodline
In this regard, it is the bloodline that is decisive, not how close your relationship with the deceased was. That question has been raised in a case on which the Court of Appeal in The Hague recently ruled.
In 2014, “Grandma” passed away; in her will, she had named a second cousin as her sole heir. This second cousin argued before the Court that, for the purposes of calculating the inheritance tax due on the estate, she should be treated as if she were a grandchild. However, the Court ruled that, for the purposes of the tax assessment of the relationship, only the actual bloodline should be taken into account. The fact that the grandmother had raised the second cousin as a grandchild was not taken into consideration.
Inheritance tax exemption and rate
In this case, the difference lies, on the one hand, in the exemptions that apply under inheritance tax. On the other hand, there is a difference in the rate.
The deceased’s spouse or registered partner is entitled to a substantial inheritance tax allowance (in 2018: € 643.194, which amount is reduced to take account of any entitlement to pension and annuity payments arising from the death). Under certain conditions, a cohabiting partner may also be eligible for this high allowance.
If parents inherit in 2018, their acquisition is € 48.242 exempt. Children and grandchildren are exempt from € 20.371 (seriously ill and disabled children: € 61.106). And all other recipients will have to make do with a mere € 2.147 exemption. The exemptions apply per recipient, but tax partners are treated jointly as a single recipient.
For the purposes of inheritance tax, a distinction is made between three groups:
- Group I: the partner and the children;
- Group II: descendants in the second or subsequent degree (grandchildren and great-grandchildren);
- Group III: all other recipients.
Descendants (Group II) are people in the testator’s direct line of descent. This therefore includes the children, grandchildren and great-grandchildren of the deceased. In the case before the Court of Appeal in The Hague, the second cousin will be the child of a child of a brother or sister of the grandmother who is the testator. This second cousin’s inheritance will therefore be subject to inheritance tax at the Group III rate.
The difference in rates is considerable. For 2018, the inheritance and gift tax rates are as follows:
| Taxable value of the acquisition | Group I | Group II | Group III |
| between €0 and €123,248 | 10% | 18% | 30% |
| over €123,248 | 20% | 36% | 40% |
Estate planning
A thorough estate planning can minimise the inheritance tax due on assets acquired from an estate, as far as the law allows. One way of doing this may be to make gifts of money whilst you are still alive, in anticipation of the inheritance. Naturally, you must ensure that these gifts are in line with your financial planning. Both plans require regular maintenance and review. VWGNijhof would be happy to discuss this with you.