How do you calculate inheritance tax?
How much inheritance tax you have to pay depends on two main things: the value of the inheritance and the relationship with the deceased. Different tax rates apply for the calculation. These tax rates vary from 10% to 20% for partners and children, and from 18% to 40% for other heirs. The rates are progressive, which means that if the inheritance is higher, the heirs also pay more inheritance tax. If the inheritance is lower, the heirs pay less tax.
Exemptions and inheritance tax rates 2023
The amount of the inheritance tax depends on the relationship with the deceased and the exemptions for which the heirs are eligible. The recipient of the estate is responsible for paying the inheritance tax.
Inheritance tax rates 2023
The following rates apply for the year 2023:
- Partners, parents and children: Up to € 138,641 a rate of 10% applies, for € 138,641 and more a rate of 20% applies.
- (Great) grandchildren: Up to € 138,641 a rate of 18% applies, for € 138,641 and more a rate of 36% applies.
- Other (for example: brothers, sisters, nephews, nieces): Up to € 138,641 a rate of 30% applies, for € 138,641 and more a rate of 40% applies.
Inheritance tax exemptions 2023
The following inheritance tax exemptions apply for 2023:
- Spouse/Registered partner/Cohabiting partner: €723,526
- Parents: €54,270
- Child/Foster Child/Stepchild/Grandchild: €22,918
- Great-grandchild: €2,418
- Child with a disability: €68,740 (additional conditions apply)
- Other heirs (e.g. brothers, sister, nephew, niece): € 2,418
In some cases, additional exemptions apply, such as donations to charities or in the case of business succession, where the recipient often has to pay a different tax on the business assets.
Inheritance tax return 2023
After the death of a loved one, an inheritance tax return must be filed. Heirs owe inheritance tax and are responsible for submitting their own tax return to the tax authorities.
They have eight months after the death of their loved one to file an inheritance tax return. It may be wise to consult a specialist when filing your inheritance tax return.
How to save on inheritance tax?
In addition to taking advantage of an exemption, there are various other ways to reduce inheritance tax. One of these is making use of the annual donation exemption. This allows you to donate an amount to your heirs each year, tax-free. By making use of this exemption you can reduce the value of the inheritance and therefore also the inheritance tax that heirs have to pay.
In 2023, the gift tax exemption will be €6,035 per (foster, step)child and €2,418 for other persons.
The Tax Authorities apply higher exemptions for a one-off donation for a special purpose, such as following an expensive course of study or buying a house. This special exemption can amount to €60,298, depending on the purpose of the donation.
Another way to save on inheritance tax is by drawing up an elective will. A good will can not only serve as an inheritance tax exemption, but also provides clarity about the distribution of assets and thus prevents conflicts between heirs.
Inheriting a company: Business Succession Scheme (BOR)
The business succession scheme (BOR) is a scheme that offers tax benefits on the transfer of a business within the family. Thanks to the BOR, inheritance or gift tax does not have to be paid on part of the value of the company.
The scheme has a pass-on mechanism for income tax, whereby the business successor takes over any income tax due. Without the BOR, both gift or inheritance tax and income tax would be due on a business transfer. The BOR provides an income tax exemption for the transferor, but this means a postponement, not a cancellation. The condition of the BOR is that the recipient must have worked for the company for at least 3 years before receiving the donation.
Pension and inheritance tax
Although this article focuses mainly on inheritance tax, it is important to know that pension plans and benefits can also affect inheritance tax.
Paying inheritance tax on payments from an annuity or pension is not necessary, although a higher payment may mean that a registered partner has to pay more inheritance tax by reducing the exemption. In any case, the minimum exemption for 2023 is always € 186,915.