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Inheritance and tax: a hornet’s nest


Inheritance and tax: a hornet’s nest


While the European Union now has a new law to simplify and cut the costs of cross-border inheritance procedures, the thorny issue of tax on inheritance remains unresolved for tens of thousands of families across the bloc. There are major financial ramifications and legal uncertainty.

Over the summer a new law was adopted to ease the legal headache over inheritance cases spread over national borders. They will now be settled in one jurisdiction, with a single criterion used to determine the law that applies: the deceased person’s habitual place of residence. However, those preparing a will can also now choose to have the law of the country of their nationality applied to their entire estate, even if they live somewhere else. The UK and Ireland decided to opt out of the reform. Denmark is also not affected by EU justice matters.

But tax issues are not covered by the new law. These still come under the powers of individual states. But the European Commission has called on EU nations to review their rules when it comes to taxes imposed on assets that make up successions, to make sure that people caught up in cross-border cases are not unfairly penalised.

Algirdas Šemeta, the Commissioner for Taxation, said: ‘Benjamin Franklin once said that nothing is certain except death and taxes. Unfortunately, when you put the two together, a huge amount of uncertainty seems to arise. The burden of cross-border inheritance tax can be crippling for citizens, due to discrimination and double taxation.

‘Small changes in Member States’ rules to make them more coherent with each other could deliver real benefits for hundreds of thousands of people across Europe. This is what we aim to achieve.’

Brussels is also calling for relief measures to be introduced. ‘At present there are no comprehensive measures in place to relieve such double or multiple taxation at any level (national, bilateral or EU),’ said the Commission.

In December officials issued a recommendation on the issue, underlining how countries could ‘make their national systems of tax relief for double inheritance taxation more effective and comprehensive’.

On its website the Commission had this to say:

EU citizens who inherit foreign property are frequently faced with a tax bill from more than one Member State. In fact, in extreme cases the total value of a cross-border inherited asset might even have to be paid in tax, because several Member States may claim taxing rights on the same inheritance or tax foreign inheritances more heavily than local inheritances. Citizens may be forced to sell inherited assets, just to cover the taxes, and small businesses may face transfer difficulties on the death of their owners.

A conference is due to be held in Brussels on November 12 to debate the issues. It is being organised by the European Commission and the Society of Trust and Estate Practitioners.

‘Inheritance and gift taxes are a relatively small source of budget revenues (estimated at 0.5%),’ the Commission said in a statement. ‘However, for the individuals concerned the impact of double taxation or discriminatory tax treatment can be enormous.’

But what happens if member states don’t move on the issue? The Commission says it has launched discussions with EU countries to make sure they react to its recommendation. It says it is ready to help individual states with any necessary steps. At the end of 2014 the Commission is due to present an ‘evaluation report’, to see how things have changed. This will be the basis for deciding whether further action is needed on a national or European level.

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