For the purposes of inheritance and gift tax, the valuation of residential properties is based on the WOZ value. Back when property values were rising year on year, nobody saw this as a problem. After all, properties were almost always taxed at a value lower than their actual value. However, during the recent period when house prices fell, the situation was reversed. This prompted a request to the tax court to determine whether this valuation rule is in fact in accordance with (European) legislation.
WOZ value
The WOZ value, like the value relevant for inheritance tax purposes, is the market value. However, the WOZ value is determined on the basis of a reference date of 1 January of the year preceding the WOZ year. For example, the 2016 WOZ value was determined using 1 January 2015 as the valuation reference date. Furthermore, the WOZ valuation is based on a comparison with prices realised in sales transactions, whereas the sale relates to the specific individual property.
Waiver of the purchase price
In the case in which we informed you in a message In its ruling in February, the Supreme Court further held that the WOZ value did not have to be used to calculate the value of the gift. However, that case did not formally concern the gift of the property. The property was sold and the seller (the parent) waived the purchase price.
House inherited
In a case recently heard Court of Appeal of The Hague It was established that a property had been inherited following the death of the interested party’s sister in 2010. The estate included the deceased’s flat, the 2010 WOZ value of which (reference date 1 January 2009) was €117,000. The interested party sold the flat on 2 February 2012 for €79,000. The interested party argued that, for the purposes of valuing the property for inheritance tax, the purchase price of €79,000 should be used (and, in the alternative, that the WOZ value of €97,000 applicable for 2012 should be used).
The Supreme Court has already ruled that the valuation rule does not contravene the First Protocol to the ECHR, nor is it devoid of any reasonable basis, even where it results in inheritance tax being calculated on the basis of a higher value than could have been realised on the date of death. Consequently, the interested party argued in this case that the inheritance tax due on the WOZ value led to a individual excessive burden. The Court finds that, taking into account the lower sale value and after deduction of inheritance tax, the estate yields a positive balance of €52,414. The interested party, on the other hand, has failed to establish sufficient facts and circumstances to support the conclusion that there is an individual excessive burden.
New WOZ value
In light of current case law, beneficiaries and heirs/legatees must bear in mind that properties are valued at their WOZ value for the purposes of inheritance and gift tax. As interested parties in the WOZ value, they may request the local authority to issue them with a new WOZ notice. That notice will, of course, state the same WOZ value as the notice issued to the original owner, but the new notice provides the opportunity to lodge an objection. In many cases, it is then possible to persuade the local authority to reduce the WOZ value. The inheritance and gift tax inspector must take such a reduction into account, even if the inheritance or gift tax assessment has already been definitively imposed.