Understanding Inheritance Tax: Reductions, Rates, and Coefficients

Inheritance Tax Base Reductions

We highlight three primary types of base reductions:

Kinship-Based Reductions

The amount of reduction varies depending on the heir's kinship group. There are four standard groups:

• Group I: Descendants under 21 years old.
• Group II: Descendants aged 21 and older, ascendants, and the spouse.
• Group III: Second and third-degree collateral relatives by affinity.
• Group IV: Fourth-degree or more distant collateral relatives, and strangers.

Life Insurance Reductions

If the beneficiary is a spouse, ascendant, or descendant, a 100% reduction applies, up to a maximum limit.

Primary Residence Reductions

If the heir is a spouse, descendant, or ascendant and inherits the primary residence, a 95% reduction applies, up to a specific ceiling. Regions have the authority to establish additional base reductions and enhance state-level deductions.

Inheritance Tax Rates and Scale

Inheritance tax is structured with a progressive scale of tax rates. The state's minimum rate is 7.65%, and the maximum rate is 34%. Typically, two sections of this rate are applied to each taxpayer. The method for organizing the rate is essentially similar to Income Tax.

Regions are competent to determine their own tax rates.

In some cases, calculating the average rate will be necessary. The average rate formula is:

Tax Payable x 100 / Taxable Base

Example Tax Calculation

Suppose the taxpayer's taxable base is €1,600. If the progressive rate scale states that for a tax base up to €1,000, the rate is 10%, and for the portion exceeding €1,000, the rate is 20%, how do we calculate the tax payable?

Taxable Base: €1,600

• Tax payable on first €1,000 (10%): €100
• Remaining Base: €1,600 - €1,000 = €600
• Tax payable on remaining €600 (20%): €120

Total Tax Payable: €100 + €120 = €220

The average rate is calculated as:

(€220 / €1,600) x 100 = 13.75%

To verify: 13.75% of €1,600 = €220.

Inheritance Tax Acquisition Coefficient

The acquisition coefficient is a multiplier that adjusts the tax liability based on the heir's existing assets and kinship group.

The determination of this coefficient considers both the heir's net worth and their kinship group.

Regions are competent to regulate these multipliers. The lowest multiplier is 1.0%, and the highest is 2.4%.