Inheritance tax across Europe: How do the rules and rates vary?

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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.

They differ substantially across Europe, ranging for instance from almost €16,000 in Belgium to more than € one million in Italy.

Revenues are less than 1% of total taxation in many countries

While the maximum inheritance tax rate exceeds 50% in several countries, revenues from inheritance, estate, and gift taxes form a very small portion of total tax revenues in Europe. The percentage of total tax revenue derived from these taxes was below 1% in 2019 except for Belgium (1.46%) and France (1.36%).

This figure was 0.71% in the UK, 0.58% in Spain, 0.52% in Germany and 0.1% in Italy.

Majority of estates go untaxed

The reason why revenues from inheritance and estate taxes are typically low is that a majority of estates go untaxed in a number of countries according to the OECD report. This is largely due to the highly preferential tax treatment applying to transfers to close relatives and because of the relief provided for transfers of specific assets. For example, these include main residence, business and farm assets, pension assets, and life insurance policies.

“In a number of countries, inheritance and estate taxes can also largely be avoided through in-life gifts, due to their more favourable tax treatment,” the report also found.

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OECD report: Inheritance tax enhance equity

The report also suggested that well-designed inheritance taxes can raise revenue and enhance equity. “From an equity perspective, an inheritance tax, particularly one that targets relatively high levels of wealth transfers, can be an important tool to enhance equality of opportunity and reduce wealth concentration,” the report said.