Less inheritance tax. The future gifts are paid out in full when the donator has passed away. The amount of the gift is not included in the inheritance. As a result, the heirs save on inheritance tax.
Inheritance tax planning
Maybe you already heard from inheritance tax planning. It is called ‘schenken op papier’ (literal translation: gifts on paper) in Dutch. We call this inheritance tax planning because it is often used to save on future inheritance taxes. Inheritance tax planning can be beneficial, but there are also disadvantages associated with it. That is why you should read up on this first. On this page, we will tell you what inheritance tax planning means, including the pros and cons.
Would you like to find out whether inheritance tax planning is beneficial in your situation? Feel free to contact our tax advisors! Fill in the contact form or call + 31 (0) 20 – 2170120 to get in touch with one of our advisors right away.
What is inheritance tax planning?
Inheritance tax planning is a future gift that is not paid out yet. A reason to choose this option instead of paying the amount is that you cannot miss the money yet (e.g., your money is ‘stuck’ in your house). So, you take on a voluntary debt with the receiver of your future gift. This debt will be paid when you, as a donator, are passed away. Inheritance tax planning is often used to pass on assets to (grand)children.
Reduction box 3 of the donator. Another advantage is that the amount of the outstanding gift is seen as a debt of the donator. This means that your assets (box 3) are reduced by the outstanding gift.
Increase of box 3. On the other hand, the outstanding amount of the gift is added to the box 3 capital of the recipient. Due to this, the recipient has to pay box 3 tax if it arises the tax-free amount of € 50,000 in 2021.
Interest 6%. The gift is seen as a debt, therefore, the donator must pay 6% interest on the outstanding amount per year. You can also look at this positively: the donator may deduct this from the assets.
Calculation example saving inheritance tax
A father has more than enough assets, and he wants to transfer some of this to his daughter, but not right away. Therefore, he makes use of inheritance tax planning.
He makes a one-off gift of € 21,881 on paper, which is exactly the tax-free amount you may give to your child once. In addition, he donates an annual amount of € 5,000, which is also within the tax exemption. Check out all the tax exemptions here. After the 10th annual donation, the father passes away. This makes the outstanding amount € 76,881.
The inheritance that his daughter will receive is € 100,000. In 2021, the exemption from the heritage of a child is € 21,282. This means that she only has to pay inheritance tax on (100,000 – 76,881 – 21,282) € 1,837.
Keep in mind that you have to pay 6% interest per year on the outstanding amount of the gift to the recipient. In this case, the amount increases to € 4,613 per year (6% of € 76,881).
Go to the notary
If you want to save inheritance tax, you must (next to paying 6% interest) register all the gifts for the inheritance tax plan at the notary. Are you not doing this? Then, the amount will not be deducted from the inheritance. You must record every new gift at the notary.
Do you have to file a gift tax return?
Whether the recipient has to file a gift tax return depends on the amount of the gift. These are the annual gift tax exemptions for 2023:
- € 6,035 when you receive it from your parents;
- € 2,418 when you receive it from someone else.
Is the amount higher than the gift exemption? In that case, the recipient must file a gift tax return. Do you want to save as much tax as possible? Then, our advice is to start gifting in time, so you remain within the gift exemption. This way, you not only save on inheritance tax but also gift tax!
We are happy to help!
Are you curious whether inheritance tax planning is beneficial in your situation? We would be happy to take a look with you. Contact us using the details below.