Estate tax

At PrivatRevision, we have extensive expertise in private tax matters and their structuring. Particularly in the context of a person’s passing, appropriate and strategic tax planning before and after the death can have significant implications for the taxes payable, and thus on the inheritance available to the beneficiaries.

Tax planning alive

Prior to death, it can be highly relevant to engage in inheritance planning, including considerations such as:

• Is there a real property you wish to sell to a family member under specific terms? Or a property that could be sold tax-free – and by whom?
• Is it possible to structure matters so that the future estate will be exempt from income taxation? (for example, total assets and wealth under DKK 3,399,600 – or double that for a surviving spouse in an undivided estate)?
• Are there potential real estate gains (e.g., on building lots or parental-purchase properties), or stock gains that could be neutralised through a tax-exempt estate? Perhaps while disposing of non-tax-triggering assets during life.

Under current legal provisions, real property can be valued with greater certainty when transferred during an individual’s lifetime than when the transfer occurs through an estate.

Estates may be either taxable or tax-exempt. As a general rule, an estate is tax-exempt if its assets (excluding certain tax-exempt properties) and net estate value (including certain tax-exempt properties) are below approximately DKK 3.4 million (or DKK 6.8 million for a surviving spouse in an undivided estate)

Care must, of course, be taken in applying the definitions of “assets” and “net wealth” pursuant to the Estate Tax Act (Dødsboskatteloven). For instance, real property covered by the “detached-house rule” is not included in the calculation of assets but is included in the calculation of net wealth.

These factors, together with other relevant considerations, are critical to address.

Tax optimisation in estate administration

When estate administration has already commenced, there may still be significant opportunities to determine whether the estate qualifies for tax exemption.

If an exemption cannot be obtained, attention can instead be directed towards minimising the tax payable and deciding who should ultimately bear the tax liability.

In some cases, it may be preferable for the tax liability to remain within the estate. In others, it may be advantageous to pass the tax burden (and corresponding benefit) on to the next generation – for example, by succession in respect of business assets, by altering or repurposing real property, or by ensuring that the heirs may later qualify for tax exemption upon disposal (e.g., where a holiday home is used personally by the heir).

In most estates, it is also beneficial to determine the optimal cut-off date – for example, the date at which the estate’s assets and any taxable gains are valued.

An integral aspect of tax optimisation within the estate is also to minimise the estate duty payable by the heirs. This requires first establishing the applicable estate duty rate for each heir, including any supplementary duty. It may also be worth considering whether certain assets should be subject to estate duty rather than to subsequent capital gains taxation in the hands of the heirs, where estate duty may be the more cost-effective option.

Tax optimisation in the context of death is thus twofold: taxation of the estate and taxation of the heirs. However, the common objective is to ensure the heirs receive the maximum inheritance after tax and estate duties.

Please get in touch with us for specific guidance.

We can also assist with the practical aspects of private estate settlement. Read more here.