What are inheritance taxes?
Inheritance tax is a tax payable to the tax authorities which is paid when the inheritance of a deceased person is passed on. When a person dies, he leaves behind a heritage which can take many forms: real estate, cash, car, works of art, etc. This heritage is transferred to one or more people called heirs. The heirs can be spouses, children or grandchildren, parents or grandparents, brothers / sisters, cousins, uncles / aunts ... In principle, partners of PACS and cohabitees are excluded because they do not appear in the order of the heirs, except in the event of a gift or in the presence of a will.
Tax principle
After a death, each heir receives a share of the inheritance. Inheritance tax is calculated after deduction on the basis of the share due to him. The tax rate varies depending on the amount collected. There is a schedule divided into tax brackets (such as income tax) to find out the rate that applies to each inheritance share. It is a progressive scale: the greater the inheritance, the higher the tax rate.
Calculation of the share of heirs
Before looking at inheritance tax, there are two necessary steps: identifying the heirs and calculating the estate of the deceased. The first step is to know how the inheritance left is to be divided, and the share that goes to each heir. Next, the taxable net assets must be determined. Taxable net assets = Assets - Liabilities (Debts). Donations before death and the existence of a will are important factors to consider. There are also certain cases which can make the calculation more complex. It sometimes happens that the deceased transfers real estate or movable property to his relatives before his death. Some families rush and share the patrimony before even filing the declaration of inheritance.
Allowances
Inheritance taxes are not calculated directly from taxable estate assets or inheritance shares. An allowance is applied before, an amount which escapes the tax. The amount of the personal allowance depends on the degree of kinship between the deceased and the heir:
- Children, fathers or mothers: € 100,000
- Brothers and sisters: € 15,932
- Nephews and nieces: € 7,967
- Other heirs: € 1,594
Important: People with disabilities benefit from an allowance of € 159,325, which can be combined with one of the other personal abatements mentioned above.
Scale
Donation and inheritance tax share the same scale. The tax rate varies from 5 to 45% depending on the amount of the taxable share. The taxable part is the part which returns to each heir after deduction (s).
For direct heirs:
- Taxable share less than € 8,072: rate of 5%.
- Taxable share between € 8,072 and € 12,109: 10% rate
- Taxable share between € 12,109 and € 15,932: rate of 15%
- Taxable share between € 15,932 and € 552,324: rate of 20%
- Taxable share between € 552,324 and € 902,838: 30% rate
- Taxable share between € 902,838 and € 1,805,677: 40% rate
- Taxable share greater than € 1,805,677: 45% rate
For brothers and sisters:
- Taxable share less than € 24,430: rate of 35%.
- Taxable share greater than € 24,430: 45% rate.
For parents (up to the 4th degree):
- Fixed rate of 55% regardless of the amount of the taxable share
For all other heirs:
- Fixed rate of 60% regardless of the amount of the taxable share
Good to know: The larger the inheritance, the higher the tax rate and the inheritance tax payable.
Practical cases
Imagine an estate of € 250,000 that a son inherited after the death of his father. As it is a child, a deduction of € 100,000 is deducted. The net taxable share is therefore € 150,000. By consulting the progressive scale, he notices that the sum is included in the 4th tax bracket, and that the corresponding tax rate is 20%. Total inheritance tax payable to the Tax: € 150,000 x 20% = € 30,000.
Suppose that the share of the estate of the sister of the deceased amounts to € 80,000. Given her family relationship, she benefits from a reduction of € 15,932. The net taxable share is therefore € 80,000 - € 15,932 = € 64,068. This amount is in the 4th tax bracket. The taxable rate is therefore 20%. Calculation of inheritance tax: € 64,068 x 20% = € 12,813.60.
Exemptions
Spouses and partners in a PACS partnership are fully exempt. Regardless of their share of inheritance, they do not have to pay inheritance tax. This total exemption can also concern brothers and sisters if the following 3 conditions are met at the time of death:
- Civil status: the brother or sister must be single, divorced or widowed.
- Age: He or she must be over 50 years of age or have a disability resulting in inability to work.
- The domicile: He or she must have resided with the deceased for at least the past 5 years.
For companies, the law authorizes an exemption of 75%. This measure aims to facilitate the transfer of a business after the death of its manager, and to guarantee its sustainability. In return, the heirs must agree not to transfer their shares or the property of the company in the following 4 years (3 years if it is a liberal profession or other sole proprietorship). If these deadlines are not respected, the exemption will be automatically canceled. The heirs will have to pay additional inheritance tax after cancellation of the exemption, a fine and default interest of 0.2% per month.
Donations
Donations made by the deceased during his lifetime are taken into account when calculating inheritance tax. In reality, only those which have been carried out during the last 15 years from the date of death are taken into account. The sums paid are then deducted from the allowance. If a nephew of the deceased received a donation of € 5,000 8 years ago, this amount must be deducted from the corresponding reduction: 7,967 - 5,000 = € 2,967. This principle is a tax reminder which allows the taxman to tax the sums given by the deceased shortly before his death.
Payment of inheritance tax
Inheritance tax can be paid by check or cash (if the amount is less than or equal to € 300). The handing over of certain buildings and works of art is possible when the amount of tax exceeds € 10,000. The settlement can be made at the same time as the filing of the declaration of succession. You can defer payment of tax, but you will have to pay interest. Split payment is an attractive solution for spreading payments without having to pay interest, up to 1 year (3 years if more than half of the assets are made up of illiquid assets.
Would you like more information on inheritance and gift taxes? Do you want to know how much inheritance you owe and the amount of inheritance tax to pay? Would you like to estimate your assets or make a donation? Contact Barnes Mont Blanc. Our agencies welcome you to answer your questions and guide you in your heritage strategy. Contact the agency nearest you and make an appointment with one of our advisers.
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