Some 19 EU countries levy inheritance, gift or estate taxes. Due to the highly preferential tax treatment applying to transfers to close relatives, the majority of estates go untaxed. The percentage of total tax revenue derived from wealth transfer taxes is very low.
Inequality in wealth distribution is prevalent across Europe. The wealthiest 10% on the continent own a staggering 67% of the wealth, while the bottom half of adults possess only 1.2% of it. The role of inheritance, estate and gift taxes are largely discussed in addressing inequalities. Some 19 of 27 EU countries levy wealth transfer taxes. However, revenues from inheritance, estate, and gift taxes exceed 1% of total taxation in only two EU countries, namely Belgium and France.
What is inheritance tax?
Inheritance tax is a specific form of wealth taxation. Net wealth taxes that are levied periodically, usually annually, on owned wealth. Contrary to this, wealth transfer taxes are levied when a transfer of wealth occurs and, in the case of inheritance and estate taxes, only upon the donor’s death.
No inheritance tax in 8 EU countries
As of 2022, according to the Tax Foundation, which relies on “Worldwide Estate and Inheritance Tax Guide 2022” and PwC’s “Worldwide Tax Summaries”, there was no inheritance, estate and gift taxes in eight EU countries. They include Austria, Cyprus, Estonia, Latvia, Malta, Romania, Slovakia and Sweden. Among the EFTA countries, there were also no wealth transfer taxes in Norway.
Five European countries abolished inheritance tax
Five countries have abolished their estate or inheritance taxes since 2000. They are Austria, Czechia, Norway, Slovakia, and Sweden. Estonia and Latvia have never levied inheritance or estate taxes.
Two Nordic, two Baltic and two island countries in the Mediterranean Sea do not impose inheritance tax.
According to the OECD’s “Inheritance Taxation” report, dated 2021, there are many common design features of inheritance, estate, and gift taxes across Europe.
The majority of countries levy recipient-based inheritance and gift taxes, but a minority levy donor-based estate taxes. Only Denmark, in the EU, levies estate taxes on deceased donors. The UK also has the same rule.
Most countries favour spouses and direct descendants through higher tax exemption thresholds and lower tax rates. The most commonly tax-favoured assets include the main residence, business assets, pension assets, and life insurance policies.
How do inheritance tax rules and rates compare?
Inheritance tax rules and rates vary depending on the country and region, the value of the assets inherited, and the level of familial closeness between the deceased and the beneficiary.
For example, in France, different rates are applied to transfers to ascendants and descendants, transfers between siblings, blood relatives up to the fourth degree, and everyone else according to the Tax Foundation.
There is also significant variation in tax rates. Most countries have progressive tax rates, but around one third apply a flat rate, and tax rates also vary widely.
In 2022, the maximum inheritance tax rate ranged from 4% in Croatia to 88% in Spain, depending on the region.
Most European countries also implement inheritance and estate tax exemption thresholds. They typically depend on the relationship between the donor and the heir, with more favourable exemption thresholds applying to closer family members.