Gift tax in marriage?

Entrepreneurs deduction (zelfstandigen aftrek)

Gift tax in marriage. Have you ever considered the gift you gave your partner for the birthday or any day are subject to gift tax?

Gift tax in marriage?

Neither have we, but the Dutch tax office has a totally different opinion. Their opinion is so strong. Now the high court stated to fully disagree with their opinion, the tax office is lost for words.

Gift tax in marriage – court case

The court case does not state the ages of the persons involved. We happen to know that the man was rather old and rich and the woman much younger and not rich. Very sorry for this rather typical traditional dream situation for some men and some women.

The man and wife created terms of the marriage before the marriage was executed. In these terms the wife would gain no part in the inheritance of the man in case of a divorce, and vice versa. During 2008 they married and the husband opened a joint bank account and a joint share account. In the joint bank account he deposited 10 mln euro. In 2012 he died.

The tax office took the standpoint that the EUR 10 mln was in fact a gift for 50% to the wife. Hence they made a claim of gift tax over EUR 5 mln. In 2012 the gift tax rate was 20% for partners, hence the tax office claimed EUR 1 mln gift tax.

Gift tax in marriage?
Gift tax in marriage?

Court procedure

The wife went to court to argue that money or goods going back and forth in a marriage cannot be regarded a gift. The courts up to and including the high court agreed. A marriage is engaged for all kind of reasons, but avoiding gift tax is not one of them.

Moreover, the balance of the bank account could have been consumed by them together or the husband could have out lived the wife. In other words, the balance of the joint account could never have been predicted at the moment of death of the husband. That is required, in order to meet ‘the will to give’ requirement, for a gift.

Gifts  between partners

In the situation one partner earns the income and the other does not. The items purchased such as clothing and what have you, are not considered as receive a gift from the working partner. Nor does the working partners see this as a gift, but as costs of the household.

To put it more simple. The money going back and forth in a marriage is never thought of by anyone as a taxed situation. The money is meant to operate the household and other aspects in the marriage.

The difference for the tax office to be triggered this time is the age and the amount involved.

Tax is exciting

The above situation in which partners would like to allocate some aspects between each other. It is important to actually be or remain tax partners. In the year of divorce there is a choice offered by the Dutch tax office to remain the full year tax partner. Even if you were divorced during the year. The separation in which one gets the house and the other the dog is than done from a tax point of view the most friendly manner.

Dutch tax on gifts and inheritance after you left the Netherlands?

Postal service and tax

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.

Dutch tax on gifts and inheritance

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.

Holidays, family, gift tax – goes hand in hand

We can only assume you cannot wait to go for the holidays abroad and visit your family. You enjoy the meal, have a coffee and while some are doing the dishes, you, you pop the question: “Dad, ever thought about gift tax?” – Tax is exciting!

Gift tax

Gift tax is a subject that comes up once in a while and often that is when family meet each other over the holidays. What happens if you were to be given a gift from your parents? The first question asked to us is about tax. But my first reply is about siblings, do you have brothers and sisters? If the answer is yes, the following question is: do they get the same gift?

Indeed not a tax related question, but if one part of the family gets an advance on the inheritance and the others do not, by the time the inheritance takes its effect, family relations are not good. If you are indeed the only child, please accept the gift.

The main rule is that if you get a gift, the gift is subject to gift tax in the country where the person giving is living.

gift tax
gift tax

Inheritance tax

Inheritance tax is for some reason never a topic during the holidays. Nobody wants to spoil the holiday mood. That said. Inheritance tax is in line with the gift tax legislation, which implies that the country where the person deceases, is the country that will tax the inheritance. If you then think you can push the hospital bed over the border into another country with lower inheritance tax rates, just before the last breath leaves the body, that will not make a difference.

Inheritance tax legislation is keen on creative actions before death. Gifts done during 180 days before death are nullified. The person going to decease can move country to a lower taxed or no inheritance taxed country. But if the person moves less than ten years from the Netherlands and dies, the Dutch tax office will tax the inheritance.

No gift, a loan

In the situation you are indeed not the only child but you have brothers and sisters, we recommend no gift, but a loan. If that is put in writing, the tension over the inheritance is less.

Family loan and tax

If your family provides you with a loan to purchase a house in the Netherlands, or to contribute to the purchase, as the mortgage is not good enough on its own, then this could be interesting. When the loan is made in a manner that the loan is paid back in a max 30 year period and interest is paid over the loan. When the loan was used for the purchase of the house, the interest is tax deductible.

If the family is reluctant to provide you a loan, as they want security for the amount loaned to you, the notary can put a mortgage on behalf of the family on the house. That said, if there is also a mortgage bank providing a loan, the mortgage bank will have first rights on the assets.

Orange Tax Services – tax is exciting

Tax is exciting, gifts are exciting, inheritance is often the consequence of death, not exciting. Death and tax go hand in hand if you refer to certainties in life. With gifts and inheritance this is no different. Rules are in place where a gift or inheritance is taxed.