Inheritance tax in Europe and double taxation

Most European countries have a tax that arises when the estate of a deceased person is transferred to his/her heirs. The amount of tax to be paid heavily depends on the affiliation to different heir-categories. European countries generally levy the highest inheritance taxes of all, with EU countries in the study taking 14% tax on the inheritance of a property of US$ 3 million, nearly twice as much as the global average of 7.67%.

In all countries, the tax level increases with a decrease in the degree of family relationship; and the threshold increases with higher degrees of family relationship. The heirs are therefore grouped according to their degree of family relationship in up to four categories. For each category, there are different progressive tax rates and different thresholds.

For example, spouses and children are completely exempt from taxation in a majority of cases, whereas for heirs with no family relationship to the deceased, the tax rate can be up to 48 percent (Luxembourg).

In the EU, some people can effectively pay inheritance tax twice or more in different countries.

Why?

EU Member States are not obliged to harmonize or even coordinate their policies on direct taxes (such as income taxes, property or inheritance taxes). They only have to respect the EU Treaties, which means for instance that Member States are not allowed to discriminate against EU citizens when imposing inheritance taxes. However, two or more Member States can impose their taxes in parallel.

It is often unclear which national jurisdiction is responsible for a case with cross-border issues. If a person lives in a country where s/he is not a national, both jurisdictions can claim responsibility for the case. Decisions about succession or being an heir in one country may also not be recognized in another country.

To facilitate cases with cross-border issues, the European countries (except Denmark, UK and Ireland) agreed on a regulation (European Parliament and European Council 2012).

The main benefit of the regulation is that only one jurisdiction will be responsible for a succession case in the future. This will be the jurisdiction where the deceased was a habitual resident.

Habitual residence is determined by the state in which the person spent the most time in the years preceding his/her death and was most closely connected to. But the successor can also state in a will that the law where s/he is national should apply to his/her case. The court responsible will attest the heirs as legal heir, and this status has to be accepted in all other European countries (European Certificate of Succession).