Many of our international clients do not only build their capital during their Dutch stint. They may have inherited money or goods in their country of origin, or have built capital before they arrived here. Almost all international clients are extensively being advised on their tax management. That is: mostly only income tax. The Dutch Gift and Inheritance Tax is based on the so-called Succession Law (“Successiewet”) and many international clients are aware too late that it has a different rule book than Dutch Income Tax.
Unlike Dutch Income Tax, there is no possibility to opt for certain treatment. If you live here, your inheritance is taxed here wherever your net assets are on the planet. It has nothing to do with your birthplace or your passport. As there are jurisdictions where a different principle is followed (e.g. what nationality you have) it may result in your beneficiaries paying taxes twice. This is where tax treaties come in and mostly soften the blow.
Inheritance tax is mostly something domestic, so it works different everywhere. So leaving your wealth to a next generation often takes a bit of work.
Family law impact
The first area of interest is – when you are married – if there is a prenuptial agreement. This often determines if the wealth you have with your partner is split 50/50 or different. Once you can determine each separate part, we then analyse how much inheritance tax will be due.
There are various legal ways to reduce inheritance tax using thresholds (what is not taxed, which rate applies over what amount) and legal structures (e.g. a trust, or, as clients recently did, change the prenuptial agreement).
This is all very much dependent on individual circumstances, and 9 out of 10 involve a notary. So please don’t do this at home; you need professional help.
In the Netherlands, the 2021 inheritance tax rate for partners and descendants (different rates apply for grandchildren, other family members, and third parties) is 10% over the first taxable €128,750 and 20% above. The gift tax rate is the same. If you give part of your intended inheritance to the beneficiary you can likely save future inheritance tax, thus getting more of your estate at the intended person. In many cases much of the estate is invested in a home and therefore not liquid. Under Dutch law it is possible to give and immediately lend the gift from the beneficiary subject to certain conditions. In the scenario below I compare the inheritance tax for a simplified situation of a single parent having an estate of €700,000 and two children. The parent pays the gift tax.
|Gift to child 1||(128,750)|
|Gift to child 2||(128,750)|
|Gift tax paid by parent||(27,144)|
|Loans from children||(257,750)|
|Inheritance tax per child||(57,125)||(7,830)|
|Inheritance 2 children||585,750||657,196|
An important plus of this approach is that the parent retains the use of assets (no liquidation needed) which can be practical. You will note the reduction in estate (see row Inheritance) size of the parent. This may – if you pay wealth tax here – reduce current Income Tax as well!
Nobody knows when it is our time to change the temporary for the infinite. But if there is a possibility it happens in this country, organising your estate can mean much for your future beneficiaries.