Did you get an inheritance? If the inheritance tax is removed, your taxation may become tighter

Inheritance tax can cause difficult situations for many people if the recipient of the inheritance does not have the cash to pay the tax, and does not necessarily have a loan for it.

Inheritance tax is a maximum of 19 percent, when it comes to inheritances of more than one million euros. There are reliefs for generational changes of companies, which can reduce the tax to 3–4 percent. However, not everyone gets relief.

Now the government is looking into replacing the inheritance tax with the Swedish model, where capital gains tax is paid only when inherited property is sold. The capital gains tax is 30–34 percent.

Chairman of the Economic Policy Evaluation Council, professor Niku Määttänen admits that switching to capital gains tax would eliminate the problem mentioned at the beginning. For him, the key question is how to treat owner-occupied apartments.

The gain on the sale of one’s own apartment is tax-free if the seller has owned the apartment and lived in it for at least two years.

“If we switch from inheritance tax to capital gains tax, then these inheritances given in the form of owner-occupied housing would be completely tax-free. That would reduce tax revenues and would be a bit difficult in terms of fiscal neutrality, because owner-occupied housing is already favored in taxation.”

CEO of the Association of Family Businesses Minna Vanhala-Harmanen reminds that the property is taxed in capital gains tax based on its correct value.

“And then there is also money to pay for it. After all, it’s your choice and you can decide when to make such a deal. Now inheritance taxes come as a surprise to the payer.”

In Määttänen’s opinion, the problem with this model is that it creates an incentive not to sell property.

“But now nobody considers it unproductive. The apartment will probably be rented out,” comments Vanhala-Harmanen.

Executive Director of the Kalevi Sorsa Foundation Lauri Finér considers that the beneficiaries of the transfer profit tax model would primarily be high earners, while the taxation of recipients of even the smallest inheritances would actually be tightened.

Vanhala-Harmanen justifies that Finnish business assets are taxed comparatively steeply in generational changes.

“It’s all off the companies’ balance sheets, their opportunities to invest in growth, when they have to take it out as dividends.”

He estimates that companies currently have to prepare for the unexpected impact of inheritance tax.

“I claim that there is half a billion to a billion euros that could be invested in growth companies, startups or elsewhere.”

Watch the entire conversation in the attached video.