The government has announced that it will draw up a new inheritance tax system, with the aim of introducing the new law in 2010. The following is an outline of the current system and the proposed changes.
Current System
Inheritance tax is a tax levied on the value of everything acquired from the estate of an individual whose last place of residence was in the Netherlands.
Lower tax rates apply to spouses, children and close relatives than to distant relatives or non-relatives. Spouses, children and unmarried cohabiting couples are subject to a minimum rate of 5% and a maximum rate of 27%. Spouses enjoy a tax-free allowance of approx. €500,000.
For distant relatives and non-relatives, the tax rates can be up to 41-68%. There are a total of four different rate groups.
People make use of wills and estate planning schemes to minimise inheritance tax, for instance using gifts to decrease inheritances in the short term and ‘generation skipping’ to decrease tax bills over the longer term.
Proposed Changes
The proposed changes are as follows:
- There will be only two rate groups: partners and children will pay 10%-20% (20% bracket to start at €125,000), others will pay 30% or 40% (40% bracket to start at €125,000);
- There will be tax free allowances of €600,000 for partners, €19,000 for children, and €2,000 for others;
- There will be further limitations on the possible use of trusts and other entities.
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