How does the inheritance of property in Europe

According to research by the British company Rightmove, 60% of overseas property buyers are over 55 years old, already at the conclusion of the transaction they are thinking about how the property will be transferred to heirs. This is for several reasons:

• the owner always has the right to decide to whom to transfer the property: in many European countries, the rule on compulsory share in the succession mass;
• the transfer of property by inheritance connected with the payment of taxes are often burdensome for the heirs;
• in some countries, for example, in France, you can avoid paying inheritance tax in advance by filling out the property for special company.

EU law on inheritance

From 17 August 2015 the EU has a law that changes the rules of inheritance of real estate: previously, foreigners owning real estate in Europe (not in the country of origin), have transferred property by inheritance in accordance with the laws of the country where the object was located. Under the new rules, procedure of transfer of the inheritance by default, does the country where the deceased was at the time of death, but the owner of the property may give preference to the law of the country of his nationality, whether EU or any other.

In the UK, the estate is inherited under British law, and in France in accordance with the laws of the country of origin of the owner of the object

This law is valid in all EU countries except the UK, Denmark and Ireland, where foreigners in the transmission of the inheritance would fall accordingly under the British, Danish and Irish laws.

The decision on the transfer of the inheritance, accepted in one EU country are automatically recognised in all other countries of the Union. There is also a European certificate of inheritance (European Certificate of Succession) certifying the right to property.

In addition to General inheritance law, there are national laws governing the payment of inheritance tax and who is entitled to the property and what percentage is required to receive children and spouses.

The order of succession

In the presence of a will the property is divided according to the requirements of the deceased. If there is no such document, then the estate passes to the relatives in accordance with the law.

In most EU countries there are several queues inheritance: generally, first and foremost, the inheritance is given to children, parents and spouses of the deceased, then brothers, sisters, grandparents, then take into account the interests of other relatives and individuals dependent. For example, in Germany there are three degrees of kinship, and in Finland there are two categories of heirs: the first group includes spouses and children, the second — all the rest.

First, the inheritance given to the children and spouses

Usually the right of inheritance comes automatically. There are also the time within which the heir must file a Declaration to the tax authorities in Germany is three months, in Italy, in Spain and France six months. Also set a time limit during which an heir may renounce the inheritance rights. For example, in Germany it’s six weeks after the heir learned of the transfer of property.

For probate usually requires the following documents:

• the passport of the heir;
• death certificate;
• marriage certificate, birth certificate (and other documents proving kinship);
• a will;
• certificate of ownership of the deceased.

The rule on compulsory share in inheritance

In many European countries there is a rule about an obligatory share in the inheritance weight — the right of family members to receive a certain share of the inheritance, regardless of whether it was specified in the will of the deceased. This rule applies almost universally in all EU countries except the UK and Ireland. For example, in France, one child in law gets half of the property of the deceased parent, two children — two-thirds, three children or more — three quarters. In turn, the British and Irish owners are no longer required to convey real estate located in France, children. They may bequeath it to any other person, even a family member.

In Italy, according to the mandatory share in the hereditary mass, one child gets half of the property, two or more children — two thirds of parents — one-third of a spouse — half, the spouse with child — in third. This rule applies to all types of property.

Inheritance tax

In Austria, Latvia and Portugal and Cyprus there is no inheritance tax. In other European countries the rate varies depending on the degree of kinship: the closer the heir of the testator, the less tax. In addition, many countries provided tax deductions.

Austria	—	Portugal	—
Bulgaria	0,00–6,60	Slovenia	0,00–39,00
UK	0,00–40,00	Turkey	1,00–10,00
Hungary	0,00–40,00	Finland	0,00–36,00
Germany	7,00–50,00	France	5,00–60,00
Greece	0,00–40,00	Croatia	5,00
Spain	7,65–of 34.00	Montenegro	Of 3.00
Italy	4,00–8,00	Czech Republic	0,00–40,00
Cyprus	—	Switzerland	*
Latvia	—	Estonia	21,00
Monaco	8,00–16,00

In Germany, if tax calculation takes into account the value of the property and the degree of kinship. For example, when you inherit a mother-daughter tax deduction is 400 thousand euros, and after deducting the remaining value of the property taxed on a progressive scale: up to 75 thousand euros — 7 %, to 300 thousand euros — 11 %, up to 600 thousand euros — 15 % and so on. With the help of tax deductions you can completely avoid inheritance tax. For example, every 10 years, parents can pass two children a property worth 800 thousand euros without tax.

In Spain, the heirs pay tax at a rate of 7,65 % to 34.00 %. To the amount of tax is then applied a factor, which depends on the value of the property and relationship (maximum factor of 2.4). Because of this, the actual maximum rate may reach 81,60 %. The rates of inheritance tax and the terms of the inheritance may vary in different regions of Spain. In Asturias, the Balearic Islands, Galicia and Murcia tax is not payable for children under the age of 21, inheriting property of parents. Also tax incentives are provided (for close relatives — up to 47 858 euros).

In Europe high taxes on inheritance, but you can almost always take advantage of the tax deductions

In France, as in Germany, the rate (5-60 %) depending on property value and degree of kinship of the heir. Tax-exempt property which passes from one spouse to another. However, the right to receive the inheritance in the first place children and parents. For them, the rate varies from 5 % (for property cheaper 8 072 Euro) to 45 % (for property more 1 805 677€). Second stage — brothers and sisters. They pay tax at a rate of 35 % (for property cheaper 24 430 euros) to 45 % (for assets held more 24 430 euros). Rates for other heirs — 55-60 %. There is also a tax credit of 100 thousand euros for the relatives.

“Taxation is not always limited only to inheritance tax. In some countries, with the change of the property owner may need to pay tax on the transfer of ownership. You will also need to reassess tax liabilities tax welfare for the person who received the property. The transfer of assets in some countries (even where no inheritance tax) and may involve the payment of stamp duty,”— said Alexey Panteleev, tax consultant at UFG Wealth Management.

For example, in Austria there is no inheritance tax, but property transfer tax on the transfer of ownership of 2.0 % (inheritance close relatives) or 3.5 % (in other cases). In Cyprus and in Portugal, where inheritance tax is also absent, upon receipt of the estate heirs to pay stamp duty. Rates of stamp duty in Cyprus — 0,15–0,20 % depending on the amount in Portugal is 0.8 %.

Transaction structuring for tax optimization

To save the descendants from ruining inheritance taxes, make out a property for a legal person — the family company, Foundation or trust.

For tax optimization in France the estate is often made out in the civil partnership real estate (la société civile immobilière SCI). In this case, the inheritance tax is virtually nonexistent. You need to go through the following steps: to establish SCI, buy for this company real estate loans, “divide” property and send it as a gift to the heir. The donation amount of the mortgage is deducted from the value of the shares of SCI. For example, the father at the age of 59 years donated property at the loan balance of 50 thousand euros, while the share of property without the right of use (nue-propriété) is estimated at 105 million euros (50% of 210 thousand total cost). In this case, the tax amount will be only 250 Euro. Under the “dismemberment of ownership” (démembrement de propriété) means a case where, for example, the parent owns the usufruct (right to use property), as successor-son — nue propriété (real property without the right to use, or simply wall).

Real estate registration to a legal entity helps to optimize taxation

In Germany in 2009 was introduced the act (Erbschafts – und Schenkungsteuergesetz), which was 100 % of the assets of the company are exempt from inheritance tax, if satisfied certain criteria: the business must operate for a minimum of seven years after the acquisition of assets, and the level of wage costs should exceed the initial level of eight times, or number of employees exceed 20. However, in December 2014, the country’s Supreme court ruled that the law is unconstitutional, and this tax benefit may be cancelled in mid-2016.

In offshore countries, the Trustee (the Trustee) is not required to report the income of the trust to the tax authorities of the country whose citizens are beneficiaries, and are exempt from the inheritance tax. For example, property in the UK, designed for offshore company will not be subject to inheritance tax (this relief will be abolished in April 2017).

“In certain cases, tools such as a trust or Foundation, can be used to optimize the taxation of inheritance, but they do not work, for example, the transfer of French real estate. In respect of residential property, for example in the UK, a mortgage loan can minimize your tax consequences if the transfer of the inheritance, the tax base is a so-called “net asset value” (net asset value) and mortgage loan (until repayment) actually reduces the value of an asset”,— says Alexey Panteleev.

In any case, each situation is unique and requires detailed studies as a specialist in probate, and tax expert.

“We recommend you to make a will with a notary or lawyer in the country where the property is located, says managing partner “Tranio” Georgy Kachmazov in the article “Inheritance of real estate and other property.”— It is desirable to include directly in the will a statement like “of belonging to me property, namely a house in France at…”. It need to not generalize all of the property, which could be in Russia or somewhere else. This is the surest way to avoid conflicts of law enforcement and unnecessary disputes.”

Yulia Kozhevnikova, “Tranio”

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