Dutch tax on gifts and inheritance. You think after you left the Netherlands that that was the end of the Dutch adventure. Well, not entirely. The inheritance and gift tax law has a second wind to your adventure.
Dutch tax on gifts and inheritance after you left the Netherlands
What is that about? Article 3 of the gift and inheritance tax law states the following. A Dutch national who has left the Netherlands. And therefore is no more Dutch tax resident, will remain treated for gift and inheritance tax purposes as if he or she has not left the Netherlands for a ten year period.
The same article states for non-Dutch nationals that this period is maxed to a one year period.
What can be the reason for this act?
The reason is very simple if you ever took the time to take notice of the gift tax rates the Netherlands applied to children. To grandchildren the rates are nearly double and to other persons even higher. In the event you have wealth and no obligations to come to work every day, you could decide to move temporarily to another country. While you reside in that other country, you can give under the local much more favorable gift tax rules, if applicable at all, your children part of your estate. Then you return to the Netherlands and life happily ever after.
That is exactly what the Dutch tax office does not want to happen, hence the 10 year period has been installed for Dutch nationals and a 1 year period for non Dutch nationals. Why non Dutch nationals are to comply with a 1 year period, even if they only spend a short period of their life in the Netherlands, we have no idea about.
Inheritance tax is like gift tax
The gift tax rules with the 10 year period could be justified. The majority of the Dutch tax residents do not agree with, do not like, or do not understand why gift tax should be paid. If you then see the gift tax rates applied, little is required to get the Dutch creative. Creativity is killed by the 10 year period.
Inheritance tax is different I think. Dying is something often not planned. Dying is not always expected and if you know you are going to die due to a decease, acting tax efficient is not on your mind. So the 10 year period for inheritance tax we find difficult to understand. We think that should be limited to 1 or 2 years, simply to avoid wealthy persons to ask the hospital bed to be moved over the border.
Any excitement in this field?
Dutch tax on gifts and inheritance. We are not so much excited about the dying part, but the giving part could be interesting. Every year you can donate tax free to your children per child EUR 5.515. That sounds maybe not as a lot, but if you do this every year and you have three children, by the time they are 18, it is a substantial amount.
Between the age of 18 and 40 years old the parent can increase one time the EUR 5.515 amount to a EUR 26.457 amount instead. If that is done, a gift tax return needs to be filed, to claim the exemption.
In the same period the parent can give EUR 55.114 to their child for an expensive study. Or EUR 103.643 for the purpose to be used for the house being the main residence of the child. The latter amount can also be given by grandparents, aunt or uncle, brother or sister. And it can also be done the other way around. So the grandchild giving tax free to the grandfather the website of the tax office shows. If that is very tax efficient, we have doubts about, as when the grandfather eventually dies, you end up paying inheritance tax over the gift you gave to your grandfather in the first place. Then I would keep it with a loan to your grandfather.
Tax is exciting
Dutch gift and inheritance tax rules and regulations do not give a lot of excitement we need to agree with. However, the annual tax free amount we are super excited about. If you start now when your children are young you are not too late yet. Donate into their bank account which you keep of course very secret to them. By the time they go their way in life, you have something to surprise them with.