Paying taxes when receiving an inheritance from abroad.

Paying taxes when receiving an inheritance from abroad

Inheritances can become complicated when received from abroad. Where do you have to pay taxes when you receive an inheritance from a country different than The Netherlands?

Authority

The instances that execute the settlement of the inheritance differ per country. In The Netherlands the notary is usually appointed. The court only acts when there is a dispute concerning the settlement.

Will

The law determines who are your heirs if you die and do not have a will and therefore you did not appoint any heirs. You are not just entitled to a part of the inheritance, but you are also responsible for finalizing the inheritance. You do have to meet certain conditions to suffice as an heir. The law determines in what order the heirs are summoned. Four groups are distinguished:”

* Spouse/registered partner and children
* Parents and siblings
* Grandparents
* Great-grandparents

A motive to set up a will can be the desire to leave certain assets to certain persons. By setting up a will you can save money in inheritance tax.

Inheritance tax

In The Netherlands you pay inheritance tax if the deceased  is living in The Netherlands or has the Dutch nationality and is not living abroad for more than 10 years at the moment of death.

The level if you are living abroad. The level of the inheritance tax is dependent of the country that taxes, if you inherit across the border. In some cases there may even be several countries who want to tax. The country in which the inheritor resided and the country where the recipient of the inheritance resides. A country can also decide to tax because the inherited wealth is located in that country. These taxes can be divided between these countries. Every country has made a choice in this matter. The consequence may be that someone is taxed double or not at all.

Hardly any agreements have been made on how to deal with cross-border inheritance tax matters.

The Netherlands has made over 80 treaties to prevent double income taxing. However, treaties are made with only seven countries to prevent double inheritance taxing.

In addition, there are several countries of which the treaties have no factual value anymore. This is because these countries have no inheritance tax. The tax that is enforced is calculated concerning the economic value of the inheritance. If the inheritance contains a house, art or securities, the chance exist that pieces will need to be sold to pay the inheritance tax. Sometimes it can be advisable to receive part of the wealth as a gift. But in this case it needs to be determined in which country you have to pay gift tax and the respective regulation.

Dudley and Francine

The following example will clarify cross-border inheritance taxing. The example concerns a couple with a LAT relationship (living apart together). Dudley lives in the United Kingdom and his wife (Francine) lives in The Netherlands. Dudley has included Francine in his will. Francine wishes to know how this tax works in both the UK and in The Netherlands if the inheritor would live there. This means that when Dudley dies, his inheritance is taxed with the British inheritance tax. In The Netherland Francine will not have to pay inheritance tax over what she will receive in inheritance. This is because Dudley was not a citizen of The Netherlands. Dudley could also consider gifting a part of his wealth.

The same rules apply for gift tax; The country can tax for gifts if the person who gifts lives in that country. Because the person who gifts does not live in The Netherlands, The Dutch Tax Authorities will see no reason to tax for gifts. A small catch in this example is that if the person who gifts dies within seven years after gifting, tax will still need to be paid. The British Tax Authorities will regard the gift as part of the inheritance. If Dudley would die within three years of the gift, then the full tariff of 40% inheritance tax will need to be paid over the gift. This percentage decreases the longer the person who gifted lives.

We advise you to figure out how inheritance is taxed when drawing up your will. This way you can avoid undesirable situations where you are taxed double and you are well prepared for the inevitable.