EU examines tax relief for cross-border inheritances

INHERITANCE tax on overseas properties is becoming an increasing problem in the EU, with cases of people being faced with bills for more than the value of the property.

There are an estimated 360,000 cases of cross-border inheritances a year resulting from increasing numbers of people living in one EU country but with property in another.

In some cases the tax authorities of more than one country can be involved, all with different legislation and all making their own tax claims.

In a case quoted by the European Commission, a Belgian citizen living in Spain inherited a house in Belgium and savings in a Hungarian investment fund from an uncle who was also living in Belgium. Belgium imposed an inheritance tax on the fund and the house; Spain did likewise, and Hungary taxed the investment fund.

Given the various tax rates, credits and allowances, overall taxation would amount to 104% leaving the beneficiary owing money even if he sold off the inheritance.

The Commission says they expect such cases to increase with 12 million EU citizens living in EU countries other than those in which they were born. In the past few years the European Court of Justice has been asked to rule on ten such cases.

Tax commissioner Algirdis Semeta believes there should be some way of ensuring people are not taxed twice on the same inheritance.

There are also problems in some countries where one set of taxes apply to citizens and a second set applies to nationals of other EU countries, he said.

The Commission is proposing changes to ensure there is adequate double tax relief as, at the moment, there are just 33 bilateral inheritance tax treaties out of 351.