Dutch government to overhaul complex estate tax system

Simplification new focus

THE HAGUE – Junior Finance Minister Jan Kees de Jager is proposing to lower all estate (inheritance) taxation rates by dropping them below 50 percent. He is also wants to simplify the inheritance tax law.

The basic principle for the drastically reformed new act will be that the position of the longest-living partner and the children will not deteriorate. As well, the position of nephews, nieces, ex-partners and care-givers will improve substantially. They now pay taxation rates of between 41 percent and 68 percent, before the remainder is distributed among the heirs. The new rates have not yet been released.

The minister, who serves with Finance Minister Wouter Bos but has his own set of responsibilities, has let it be known he is considering one or two tax brackets and two or three groups of heirs for the disbursements of estates, for a maximum of six different rates. At present, there are as many as 28 categories.

The reform of the law has to be budget-neutral, however. The tax cuts must be realized by ’saving’ hundreds of millions in other areas. De Jager wants to achieve this by closing loopholes in the law that currently allow for the legal evasion of taxes that the authorities had not foreseen when the tax laws were written.

Recipient

The proposed implementation deadline for the inheritance act is July 2010, which De Jager wants to write this year in close consultation with interested parties. Tax-free thresholds and gifts while the benefactor is still alive will be allowed. De Jager wants to base the new law on an economic model instead of a strictly judicial one. Inheritance taxes will be based on the recipient of the funds, who benefits economically from them. Currently, the testator is the basis.

The minister said he also is looking at simplifying the fiscal ramifications of company succession by inheritors, currently comparable to ’a pile of spaghetti,’ extremely hard for anyone to comprehend. The aims are that the family company can be continued beyond succession. Now many businesses get sold in order to pay inheritance taxes.