Those who start transferring their assets to future heirs early can pass on larger sums tax-free. The personal allowance is the same in most cases. Up to this amount, the beneficiary is not liable for inheritance or gift tax. However, there is an exception for parents and grandparents: their allowance is €100,000 for inheritance tax, while it is only €20,000 for gift tax. “Generally speaking, the closer the family relationship between the testator or donor and the recipient, the higher the allowance, ” says lawyer István Cocron.
Tax bracket affects the tax rate
The degree of kinship determines not only the tax-free allowance but also the tax bracket. Spouses or children of the deceased pay lower tax rates than more distant relatives or unrelated beneficiaries. Only the portion of the estate exceeding the personal tax-free allowance is subject to taxation. The following overview shows the tax-free allowances and tax brackets according to the degree of kinship:
Degree of kinship Tax-free allowance
Spouse, Life Partner 500,000 Euros
Children, stepchildren: 400,000 euros
Grandchildren 200,000 Euros
Parents, Grandparents 100,000 Euros
Siblings, Nieces, Nephews, Divorced Spouses: €20,000
All other heirs: 20,000 euros
Tax rates increase with the size of the inheritance.
Besides the tax bracket, the size of the estate also plays a role in determining the tax rate. The higher the inherited assets, the more inheritance tax is due. The following table shows the tax rates by tax bracket:
Asset Class I Class II Class III
Up to €75,000: 7%, 15%, 30%
Up to €300,000: 11%, 20%, 30%
Up to €600,000: 15% 25% 30%
Up to €6,000,000: 19% 30% 30%
Up to €13,000,000 23% 35% 50%
Up to €26,000,000: 27%, 40%, 50%
Over €26,000,000 30% 43% 50%
Use tax allowances every ten years
A large fortune can be effectively transferred through early gifts. The tax-free allowances for gift tax can be used again every ten years. Those who start early enough can pass on substantial sums tax-free. For example, a 60-year-old could give each child €1.2 million by their 80th birthday, with an additional €600,000 for each grandchild.
Allowance for maintenance only applies to inheritances
In addition to the tax-free allowances, there is a maintenance allowance for spouses and children up to age 27 under inheritance tax law. This allowance is €256,000 for spouses and registered partners. For children up to age 5, it is €52,000, decreasing to €10,300 for young adults between 20 and 27 years of age. ” This maintenance allowance cannot be used for gifts, but only applies to inheritances ,” explains lawyer Cocron.
Inheritance tax on real estate
Real estate often presents a special case when it comes to inheritance. Spouses and children of the deceased can inherit a self-occupied property tax-free, provided it has a living area of no more than 200 square meters and has been used as the owner’s primary residence for at least ten years. In these cases, the value of the property is not included in the calculation of other tax-free allowances. For all other heirs, the market value of the property is included in the inheritance, with only the tax-free allowance being deducted. Since the regulations in the inheritance tax law are very detailed, it is advisable to consult a tax advisor when dealing with the inheritance of real estate.
