Legal Alerts/27 Dec 2012

Legal Alert – Changes In Legislation Regarding Inheritance And Gift Duty Tax

The recent government bill 93/2012 rd includes three different kinds of amendments to the Inheritance and Gift Tax Act 378/1940 currently in force. The amendments are scheduled to become effective in 2013. The most significant amendment, a new tax scale, will be in force temporarily until 2015.

A temporary new tax scale

According to the proposal, a new tax scale shall become applicable on inheritance and gifts exceeding one (1) million euros. Tax on the exceeding amount is subjected to 19 % tax within the first (I) tax bracket and 35 % in the second (II) tax bracket. The new tax scale shall only be in force for two (2) years, although the government’s temporary measures have a tendency to become permanent.

The proposal is a part of the government program to strengthen the state’s economy and narrow the gap between the different levels of income. Experts in the field of change of generation have particularly criticized the proposal for the negative effect it might have on the changes of generation. In accordance with the Legal Affairs Committee, the new tax scale will only be actualized when the amount of the inheritance and gift exceeds 2.5 million euros. Transfers exceeding this sum were few in 2011 according to additional information provided by the Ministry of Finance.


Insurance compensation paid on the basis of the benefit clause is a gift in accordance with the Inheritance and Gift Tax Act. Gifts of this sort has been exempted from tax as long as the total amount has not exceeded 8,500 euros during a period of three years. This benefit is now being withdrawn. The tax exemption has been an exception from the general duty to pay taxes on gifts. According to the bill, there are no grounds for the tax exemption. This amendment enters into force on 1 January2013 and is valid until further notice. There will be no transition period.

Estate taxation when the intestate has passed away abroad

The European Commission notified Finland on 12 December 2011 that it suspected Finland being in breach of Article 63 of the Treaty on the Functioning of the European Union regarding free movement of capital. The reason was Finland’s discrepancy between taxation of inheritors depending on whether the intestate had passed away in Finland or abroad. Regardless of the parties’ place of residence, inheritance tax is paid on real property situated in Finland and on shares or interests in a corporation, which property consists of more than 50 % real property located in Finland.

The right to deduct debts and costs from the estate depending on where the intestate passed away has given rise to the notification. The amendment to the Inheritance and Gift Tax Act makes it possible for the inheritors to deduct costs, which are not connected to certain property, from the estate as a whole, including the proportional value of the assets located in Finland. Costs and obligations in relation to property abroad, thus not taxable in Finland, must not be deducted from the value of the property taxable in Finland. The place of the intestate’s or inheritor’s residence shall consequently have no effect on the inheritance tax.

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Additional information

Janne Juusela