This content is from: Finland

Finland: Changes in the inheritance and gift tax

Janne Juusela
The recent government Bill (93/2012) includes amendments to the Inheritance and Gift Tax Act. The amendments are effective as from January 1 2013.

A temporary new tax scale

According to the amendment, a new tax scale is applicable on inheritance and gifts exceeding €1 million ($1.3 million). Tax on the exceeding amount is subject to 19% rate within the first tax bracket and 35% in the second. The new tax scale shall only be in force for two years, although the government's temporary measures have a tendency to become permanent.

The amendment is a part of the government programme to strengthen the state's economy and narrow the gap between the different levels of income. Experts in the field of change of generation have particularly criticised the proposal for the negative effect it might have on the changes of generation. In accordance with the Legal Affairs Committee, the new tax scale will only be actualised when the amount of the inheritance and gift exceeds €2.5 million. Transfers exceeding this sum were few in 2011 according to additional information provided by the Ministry of Finance.

Estate taxation when the intestate has passed away abroad

The European Commission notified Finland on December 12 2011 that it suspected the country was in breach of Article 63 of the Treaty on the Functioning of the European Union regarding free movement of capital. The reason was Finland's discrepancy between taxation of inheritors depending on whether the intestate had passed away in Finland or abroad. Regardless of the parties' place of residence, inheritance tax is paid on real property situated in Finland and on shares or interests in a corporation, which property consists of more than 50 % real property located in Finland.

The right to deduct debts and costs from the estate depending on where the intestate passed away has given rise to the notification. The amendment to the Inheritance and Gift Tax Act makes it possible for the inheritors to deduct costs, which are not connected to certain property, from the estate as a whole, including the proportional value of the assets located in Finland. Costs and obligations in relation to property abroad, thus not taxable in Finland, must not be deducted from the value of the property taxable in Finland. The place of the intestate's or inheritor's residence shall consequently have no effect on the inheritance tax.

Abandonment of exemption of insurance gifts

Insurance compensation paid on the basis of the benefit clause is a gift in accordance with the Inheritance and Gift Tax Act. Gifts of this sort have been exempted from tax as long as the total amount has not exceeded €8,500 during a period of three years. This benefit is now being withdrawn. The tax exemption has been an exception from the general duty to pay taxes on gifts.

Janne Juusela (janne.juusela@borenius.com)
Borenius – Taxand
Tel: +358 9 615 333
Website: www.borenius.com

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