Real estate inheritance in Europe

60% of overseas property buyers are people aged 55 or more according to Rightmove, a British property broker. Because they are approaching retirement age, they are already looking a few decades ahead to how the real estate succession will take place.

— Some countries prevent owners from deciding how property is bequeathed.
— Inheriting real estate comes with taxes that are often imposed on heirs.
— Some countries have inheritance tax exemptions for buyers who plan ahead.

EU inheritance law

Under the new rules came into effect on 17 August 2015, EU courts where the person usually resides at the time of their death will deal with the inheritance and apply the law of that EU country. The new rule applies to all EU countries except the UK, Denmark and Ireland where property of defunct owners are submitted to local law no matter their country of residence.

If the owner is a French resident, the property is subjected to French inheritance laws

The new European inheritance regulations depend on national laws pertaining to inheritance tax, eligible successors and mandatory obligations towards dependents and spouses.

At the same time, title deeds on inherited property passed in one EU state will be automatically recognised by all the other EU states. The title deed is also confirmed by a European Certificate of Succession.

Inheritance procedures

Property is redistributed according to a will (if applicable). If there is no will, the estate will be divided according to national law. Each EU country has its own definition of next of kin. Generally, first of kin include the first children, parents and spouse, followed by siblings and grandparents and finally distant relatives and dependents.

Children and spouses are the first kin in line to inherit

National law prescribes deadlines by which an heir or legatee should file an inheritance declaration with the tax authorities: three months in Germany, six months in Spain and France, one year in Italy, etc. Heirs and legatees also have the option of waiving their right to inheritance (e.g., within six weeks after learning of the inheritance in Germany).

Documents to formalise estate transfer:

— heir/legatee passport
— death certificate
— marriage certificate, birth certificate, other documents proving relation
— will
— property title deed

Sharing the estate

Many European countries have rules regarding the share of estate that goes to the person’s next of kin (whether or not they have been named in the will), except the UK and Ireland. In France, if there is no surviving spouse, the children share the inheritance equally between them. However, under the new European rule, British and Irish owners in France are free to choose who will inherit their property in accordance with law in their home countries.

Inheritance tax

There is no inheritance tax in Austria, Latvia and Portugal. Other European countries apply inheritance tax according to the degree of relation: direct blood relationships benefit from lower tax rates. Many countries grant tax deductions.

Inheritance tax in Europe, %

Austria Portugal
Bulgaria 0.00–6.60 Slovenia 0.00–39.00
Cyprus Switzerland *CHF 20,000–400,000
Germany 7.00–50.00 France 5.00–60.00
Greece 0.00–40.00 Croatia 5.00
Hungary 0.00–40.00 Finland 0.00–36.00
Italy 4.00–8.00 Czech Rep. 0.00–40.00
Latvia Estonia 21.00
Monaco 8.00–16.00
Spain 7.65–34.00 Montenegro 3.00
UK 0.00–40.00 Turkey 1.00–10.00

Germany assesses the tax based on property value and degree of kindred. Up to €400,000 is tax deductible if the inheritance tax is charged on property transferred from mother to daughter while the remaining sum is subject to a progressive rate: 7% up to €75,000, 11% up to €300,000, 15% up to €600,000, etc. Tax deductions can help avoid inheritance tax. For instance, if parents transfer property worth €800,000 to their children over a 10-year period, they will not have to pay tax.

Spain’s legatees pay 7.65–34.00% tax according to a coefficient of property value and degree of kindred (capped at 2.4). In some cases, the maximum rate can reach 81.60%. Inheritance tax and terms vary from region to region. In the Asturias, Balearics and Murcia, children under 21 are not subject to the tax. Close relatives can also obtain tax deductions up to €47,858.

Inheritance taxes in Europe are high, but there are many loopholes

France and Germany have tax ranging from 5% to 60% depending on the property value and the degree of kinship. Property transferred between spouses is exempt from tax. Children and parents are considered first of kin and subject to taxes from 5% (estate under €8,072) to 45% (estate over €1,805,677). Sibling legatees pay tax from 35% (estate under €24,430) to 45% (estate over €24,430). Other heirs are taxed at 55–60%. Close blood relatives can apply for a tax deduction up to €100,000.

Alexey Panteleev,
tax advisor at UFG Wealth Management
Taxes are not only about inheritance tax. When the property owner changes, some countries may impose an additional property transfer tax. The legatee will also have to reassess their wealth tax obligations. Property transfer in some countries (even if there’s no inheritance tax) can be subject to stamp duty.

Austria does not have any inheritance tax but property transfers are subject to 2.0% tax for close kin or 3.5% for distant relations.

Cyprus and Portugal don’t charge inheritance tax to those who pay stamp duty on the property transfer: from 0.15% to 0.20% in Cyprus and 0.8 % in Portugal.

Structuring the transfer

Many heirs and legatees register the property in the name of a legal entity that might be a family company, a fund or a trust in order to avoid inheritance tax.

In France, they can create a civil real estate partnership (Société Civile Immobilière or SCI) for tax purposes, allowing them to pay very low taxes. In the UK, property registered in the name of an offshore company is not subject to inheritance tax (law to be amended in April 2017).

Alexey Panteleev,
tax advisor at UFG Wealth Management
Sometimes vehicles like trust funds can be used to structure inheritance taxes (but not in France). A mortgage can mitigate tax implications for the transfer of residential property, like in the UK where the tax base is the net asset value. Having a mortgage (until it is repaid) effectively reduces the asset value. To avoid complications, it is always highly advisable to engage the services of local legal and tax specialists to structure the transaction in a way to minimise future cost for your family.
Yulia Kozhevnikova, Tranio
 
 
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