Inheritance, gift or property tax is levied in 19 EU countries. However, when transferring property to close relatives, a very favorable treatment is applied, so most inheritances remain tax-free.
Inequality in the distribution of wealth is widespread throughout Europe. The richest 10% of people on the continent own a staggering 67% of the wealth, while half of the entire adult population together own just 1.2%.
The role of inheritance, property and gift taxes in addressing inequality is often debated. 19 of the 27 EU countries levy wealth transfer taxes. However, revenues from such taxes exceed 1 percent of total taxation in only two EU countries, namely Belgium and France.
What is inheritance tax?
Inheritance tax is levied at the time wealth is transferred, usually after the death of the donor. In this way, it differs from classic wealth taxes, which are collected annually from a person’s property.
Inheritance tax is absent in eight EU countries
As of 2022, eight EU countries have no inheritance tax, according to the Tax Foundation, a think tank based on the 2022 Guide to Estate and Inheritance Taxes Worldwide and PwC’s Global Tax Brief , property and gift. These are Austria, Cyprus, Estonia, Latvia, Malta, Romania, Slovakia and Sweden. Among the countries of the European Free Trade Association (EFTA), wealth transfer taxes are also absent in Norway.
Five European countries abolished inheritance tax
Since 2000, five countries have abolished inheritance tax. These are Austria, the Czech Republic, Norway, Slovakia and Sweden. Estonia and Latvia have never charged it.
According to the Organization for Economic Co-operation and Development (OECD) Inheritance Tax 2021 report, there are many common features of inheritance, estate and gift tax structures in Europe.
Most countries levy inheritance and gift taxes on recipients, a minority on donors. Only Denmark in the EU levies inheritance tax on deceased donors. The same rule applies in the UK.
Most countries favor spouses and direct descendants through higher tax exemption thresholds and lower tax rates. The most commonly taxed assets include primary residences, businesses, retirement savings and life insurance policies.
How do the inheritance tax rules and rates differ?
Inheritance tax rules and rates depend on the country and region, the value of the inherited assets and the degree of family relationship between the deceased and the recipient.
For example, in France, according to the Tax Foundation, different rates apply when inheriting between relatives in the ascending and descending lines, when inheriting between siblings, blood relatives up to the fourth degree and all others.
Tax rates also vary widely. Most countries have progressive tax rates, but about a third of countries have flat rates.
In 2022, the maximum inheritance tax rate varied from 4% in Croatia to 88% in Spain, depending on the region.
Most European countries also have inheritance and property tax exemption thresholds. These generally depend on the relationship between the donor and the heir, with more favorable exemption thresholds applying to closer family members.
In different European countries, they differ significantly, for example, from almost 16,000 euros in Belgium to more than a million euros in Italy.
In many countries, inheritance tax revenue is less than 1 percent of total taxation.
Although the maximum rate of inheritance tax exceeds 50% in several countries, revenues from inheritance, property and gift taxes represent a very small proportion of total tax revenue in Europe. In 2019, the share of total tax revenue from these taxes was less than 1%, with the exception of Belgium (1.46%) and France (1.36%).
In Great Britain, this figure was 0.71%, in Spain – 0.58%, in Germany – 0.52%, in Italy – 0.1%.
Most inheritances are tax-free
The reason for the low income from inheritance and property taxes is that in a number of countries, according to the OECD report, most of the inheritance remains tax-free. This is largely due to the very favorable tax treatment that applies to the transfer of property to close relatives, as well as the benefits provided for the transfer of specific assets. For example, this is a primary residence, business and farm assets, retirement assets and life insurance policies.
“In a number of countries, inheritance and property taxes can also be largely avoided by gifting during life thanks to a more favorable tax regime,” the report says.
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The report also argues that well-designed inheritance taxes can raise revenue and improve equity.
“From an equity perspective, an inheritance tax, particularly one that targets relatively high levels of wealth transfer, can be an important tool for increasing equality of opportunity and reducing wealth concentration,” the report said.