What is inheritance tax?
If someone has more assets than debts at his or her death, these are transferred to the heirs. If the heirs accept the inheritance and there are more debts than assets, the heirs settle these debts. Heirs can also refuse the inheritance. If they do so in time, they are not liable for the debts. Are there more assets than debts? Then the net assets pass to the heirs. Tax must be paid on the value one inherits - inheritance tax. We have already published about taking steps to reduce the amount of inheritance tax. We are happy to help with that. However, this publication is about the amount of inheritance tax to be paid.
Inheritance tax rate
The amount of the tax depends on the value of the inheritance received and the relationship to the deceased. The greater the value of the inheritance, the higher the percentage you have to pay in taxes. In 2021, if for example, a child inherits up to €128,751, it will have to pay 10% tax on the inheritance amount. For the excess above € 128,751, the rate is 20%. For others (nephews, uncles, etc.) the rate is higher.
Exemptions do apply. For a spouse, registered partner, or cohabiting partner, the amount of the exemption is € 671,910. For a child, this is a lot lower: € 21,281. Especially for the partner, this amount looks high. Is there a home on which there is no mortgage left and are there some other possessions? Then this amount is quickly reached. If the deceased had their own business, the value of the estate is often higher than the amount of the exemption.
Paying tax debt can cause problems.
The inheritance can consist of more things than just money. Think of a house, shares, antiques, jewelry, or a collection. Inheritance tax must also be paid on the value of these items. However, you have to pay that tax in money. As a result, it may happen that the heirs do not have enough cash to pay this tax. You may then be forced to sell certain goods in order to have enough money to pay the tax.
Forced sale can be emotionally very difficult if the next of kin attaches to the goods that have been inherited. It is also possible that it does not make sense to sell things during that period. For example, in the case of shares for which prices have fallen sharply in that period. The same applies to the moment when a property has to be sold.
Inheritance tax insurance provides cash
To prevent the above problems, you can take out life insurance on the life of the testator. It should be borne in mind that someone can also die at a relatively young age due to illness or accident. For the remaining family, the inheritance tax claim can then cause major problems.
We keep the essence of this solution simple to make it clear how the construction works. On behalf of the partner or the children, a life insurance policy is taken out on the person who owns the assets. If this person dies, the insurer pays out capital in money to the partner and/or children. This money can then be used to pay the inheritance tax.
Contact your advisor in time
Through good consultation with your financial advisor, you can ensure that the inheritance tax can also be paid and does not unnecessarily take up too large a part of the assets.