What happens after 1 September? The key changes in inheritance law and inheritance tax!
There has been plenty of legislative activity in the past year; 1 September 2018 is the big day when the changes to inheritance law and inheritance tax will finally take effect. Our wealth planners describe the key changes.
The reserve, asset contributions and clawback
The reserve – the portion of the estate which is the heirs’ minimum entitlement in the event of a death –has changed: the children’s total reserve now amounts to 50% of the estate regardless of the number of children. A testator with more than one child therefore has a larger share of his or her assets to dispose of freely.
Again, a testator’s parents are no longer entitled to 25% of the estate if there are no children, although they can file a maintenance claim in relation to the estate.
Under the new inheritance law, the valuation of the gifts with a view to clawback (inclusion of their value in the estate for the purposes of calculating inheritances) will take place on the basis of the net asset value on the date of gifting, index-adjusted until the day of death. This does not apply to gifts with reservation of usufruct, where the value on the date of death must be used.
However, a clawback of this kind now takes place on the basis of value rather than ‘in kind’ if the reserve is affected. Thus reserve heirs can only claim the value of their reserve, rather than the gifted assets themselves, such as the home.
Finally, from now on the surviving partner’s reserve will also be taken first from the available portion of the estate, and only then from the children’s reserve. The surviving partner can also no longer claim inheritance rights to gifts made by the testator that predate their marriage.
The prohibition on inheritance agreements has been relaxed, so that it is now possible to conclude a general inheritance agreement between the testator and all heirs, or a number of legally defined occasional inheritance agreements. Read our articles on this subject.
Legally maintained usufruct
Under the new legislation, the surviving partner can no longer demand that gifts be brought into the estate, but will have a legally maintained usufruct with respect to gifted assets if this has been specified by the testator. This only applies to gifts made after 31 August 2018, and the testator must already have been the surviving partner at the time of the gift. This maintained usufruct will be subject to inheritance tax.
Under the new inheritance tax legislation, there is a tax-free threshold for the surviving spouse or cohabiting partner of the first EUR 50,000 of the net acquisition of movable property. In concrete terms, this means that no inheritance tax will be charged on the first EUR 50,000. This represents a saving of EUR 1,500.
The tax-free threshold for children under the age of 21 who have lost both parents is a full tax exemption on the acquisition of the family home and a tax-free threshold of the first EUR 75,000 of the net acquisition of movable property.
Under certain conditions there will be an exemption from gift tax in the event of a transfer gift in connection with generational legacy skipping (a transfer or other gift within one year after death); this exemption may never exceed the amount of inheritance tax paid.
The inheritance tax bands and rates for siblings and for third parties have changed:
- For amounts from EUR 0 to 35,000, the inheritance tax is 25% for siblings and 25% for others
- For amounts from EUR 35,000 to 75,000, the inheritance tax is 30% for siblings and 45% for others
- For amounts of more than EUR 75,000, the inheritance tax is 55% for siblings and 55% for others
Where the legally maintained usufruct is explicitly subject to inheritance tax, a usufruct reversion clause is included in a deed of gift, outside the scope of inheritance tax. If this usufruct reversion clause is accepted by the survivor, gift tax rather than inheritance tax will be charged.
If there is a contractual accrual of usufruct clause, no inheritance tax or gift tax is payable on gifts of a joint asset.
Find out about the important changes that this new legislation has had on matrimonial property law.