The capacity in which a person inherits from an estate is of great importance in determining the amount of inheritance tax.
No discrimination
At the Court in The Hague A legatee argued that the difference in taxation between himself and his brother’s wife was contrary to European law (discrimination). The value of the bequest received by the brother amounted to €722,946. The tax authorities had applied the exemption of € 2.057 was deducted. The inheritance tax due amounted to €276,530.
The wife of the deceased brother was entitled to an exemption of no less than € 616.880. And the rate of inheritance tax she was liable to pay amounted to 10% (on the first €118,254 of the acquisition) and 20% (regarding the surplus). The brother paid out of his bequest 30% and 40% inheritance tax.
The Court sees no conflict with European law and therefore no grounds for declaring the Inheritance Tax Act (in whole or in part) inapplicable.
Estate planning
The court’s decision comes as no surprise to us. However, this case does clearly illustrate that the way in which inheritance tax is levied makes careful estate planning essential. Had the bequest not been granted in this case, the wife would have received €722,946 more as an heir. She would have been liable for inheritance tax on that amount: 20% * €722,946 = €144,589. This is considerably less than the inheritance tax paid by the brother (€276,530).
We should, however, be quick to point out that, in our view, taxation should not be the decisive factor in estate planning (or other financial planning). The testator in the aforementioned case probably made a conscious decision to allow his brother to share in his inheritance through the bequest. The higher inheritance tax will have been accepted as a necessary consequence of this.
After all, without the bequest, the entire estate would have gone to the sole heir, the wife. And following the wife’s death, the brother would have received nothing. After all, he is not an heir of his brother’s wife.
Think it through carefully
Estate planning is therefore something you would be well advised to give careful thought to. VWGNijhof can provide you with a clear overview of your income and assets and, based on this, help you to work through the options. Naturally, we can set out the (tax) implications of the options under consideration.