OVERVIEW
Overview
Inheritance tax and gift tax share the same rate structure, but the actual burden varies greatly according to what property is transferred, to whom, and when. Gifts made within ten years to an heir, or within five years to a non-heir, are added back to the estate, and for real property the tax base itself changes with the valuation method. It is not uncommon for the assessed tax to change after filing, following a revaluation by the tax office.
VALUE Tax & Accounting begins by calculating whether inheritance or gifting is more advantageous, considering the composition of the estate, family relationships and the expected timing together. For real property we compare the tax effect of each valuation method in advance and document the basis, and for demanding reliefs such as the spousal inheritance deduction and the family business inheritance deduction we check eligibility beforehand. We also prepare supporting material in anticipation of post-filing review.
KEY ISSUES
Key tax issues in inheritance & gifting
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01
Prior gifts and aggregation
Property gifted to an heir within ten years of the date of death, or to a non-heir within five years, is added back to the estate. The gift tax already paid is credited, but the aggregation can push the estate into a higher rate band, so the timing of a gift should be decided with the eventual inheritance in view.
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02
Valuation of inherited and gifted property
Inherited and gifted property is valued at market value as a rule, with the officially assessed value applied only where market value cannot be established. A comparable sale nearby at around the same time may be recognised as market value, and obtaining a formal appraisal is sometimes more favourable, so the options should be compared in advance.
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03
Spousal inheritance deduction
The spousal inheritance deduction is applied on the amount the spouse actually inherits, within the limit of the statutory share. Because the deduction changes with how the estate is divided, it is safer to calculate the tax before the division agreement is concluded.
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04
Family business inheritance deduction
The deduction is substantial, but the deceased's period of management, the heir's engagement in the business and the post-inheritance maintenance requirements must all be satisfied. If the requirements are breached after inheritance the deducted tax is assessed back, so long-term planning is a precondition.
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05
Filing deadlines and post-filing review
Inheritance tax is filed within six months from the end of the month in which death occurred, and gift tax within three months from the end of the month of the gift. Above a certain scale the tax authority revalues the property when determining the assessment, so retaining the basis of valuation makes the response far easier.
HOW WE HELP
How VALUE Tax & Accounting responds
Inheritance and gift simulation
We calculate the tax burden of gifting and of inheritance side by side, reflecting the composition of the estate and family relationships, and compare options for splitting the transfer by timing and recipient.
Valuation review and documentation
We compare the officially assessed value, comparable sales and formal appraisal to select the more favourable method, and document the basis of valuation in preparation for later review.
Advance check of relief conditions
For reliefs with complex conditions, such as the spousal and family business inheritance deductions, we confirm eligibility and the ongoing obligations in advance, removing the risk of a later assessment.
FAQ
Inheritance & gift tax FAQ
Q What happens if death occurs within ten years of a gift? expand_more
Property gifted to an heir within ten years of the date of death is added back to the estate. The gift tax already paid is credited, but the aggregation can raise the applicable rate, so the timing of a gift should be decided with the eventual inheritance in mind.
Q May real property be reported at the officially assessed value when gifted? expand_more
The rule is valuation at market value, with the officially assessed value applied only where market value cannot be established. A comparable sale nearby at around the same time may be recognised as market value, so this should be checked before filing.
Q Does leaving more to a spouse reduce the tax? expand_more
The spousal deduction applies on the amount actually inherited, within the limit of the statutory share. Concentrating the estate on the spouse can, however, increase the burden on the second succession, so the division should be set with both events in view.
Q Is a transfer structured as a loan to a child not a gift? expand_more
It is treated as a loan only where interest and principal actually move and the borrowing can be evidenced. Without a record of repayment it is treated as a gift and taxed, so a loan agreement and records of interest payment must both be kept.
Q What is the filing deadline for inheritance tax? expand_more
Within six months from the end of the month in which death occurred. Identifying and valuing the estate takes time, so starting close to the deadline tends to leave the review of available deductions incomplete.