Dutch Inheritance and Gift Tax
Estate planning is a key area of financial concern for internationals, especially those with ties to multiple countries. Dutch inheritance and gift tax laws can be complex, particularly when it comes to cross-border scenarios involving parents and children living in different countries. In this article, we explore the rules around Dutch gift tax and how time spent abroad can significantly impact the amount of tax paid on a substantial gift, such as €100,000, from a parent to a child.
Dutch Gift Tax Basics
In the Netherlands, gifts from parents to children are generally subject to gift tax. The tax rates range from 10% to 40%, depending on the amount of the gift and the relationship between the giver and the recipient. For gifts from parents to children, the rates are 10% on the first €152,368 and 20% on any amount above that. There are also some annual exemptions, with parents able to give tax-free gifts up to €6,663 per year (2024) to their children. There are 2 possible extra gift exemptions for parents but we will not go into those for this article.
However, when one or both parties involved in the gift lives abroad, the tax situation can change. This is particularly relevant for internationals whose children may have emigrated from the Netherlands, but who still plan to transfer assets or wealth to them.
The Impact of Emigration on Gift Tax
If the child has emigrated, the Dutch gift tax rules apply for a limited period of time following the move. This period depends on how long ago the child left the Netherlands. Specifically, if the child has been a non-resident of the Netherlands for fewer than 10 years, the gift tax will still apply as if the child were living in the country. This is known as the “emigration rule.”
Once the child has been abroad for more than 10 years, the Dutch gift tax no longer applies, provided the parent does not reside in the Netherlands either. This difference in timing can have a substantial impact on the tax treatment of large gifts.
Example: €100,000 Gift from a Parent to a Child Abroad
Let’s take the example of a Dutch parent who wants to give their child, who has emigrated, a gift of €100,000. The tax implications will vary significantly depending on how long the child has been living outside the Netherlands.
Child Emigrated Six Years Ago
If the child emigrated six years ago, they are still within the 10-year window in which Dutch gift tax rules apply. In this case, the gift of €100,000 would be subject to Dutch gift tax. After
applying the annual tax-free allowance of €6,035, the taxable amount would be €93,965. At the 10% tax rate, the child would owe approximately €9,397 in gift tax on this amount.
Child Emigrated Eleven Years Ago
Now consider that the child emigrated eleven years ago. Since they are now outside the 10-year emigration rule, the gift is no longer subject to Dutch gift tax laws. The child would therefore receive the entire €100,000 tax-free, assuming no other gift taxes apply in their country of residence. This could represent a significant tax saving compared to the earlier scenario.
Planning Considerations
For families with cross-border ties, understanding the timing of large gifts can make a substantial difference in tax liabilities. Parents should consider the timing of such gifts carefully, especially in light of the 10-year emigration rule. If the child has been abroad for fewer than 10 years, it might make sense to delay a large gift until after this period, in order to avoid the Dutch gift tax.
In addition to the emigration rule, it’s important to consider the tax implications in the child’s country of residence. Some countries, like the U.S., may still impose taxes on foreign gifts, so it’s essential to get professional advice that considers both jurisdictions.
Conclusion
Cross-border estate planning can be complex, but careful planning can yield significant tax savings. If you’re considering making a large gift to a child who has emigrated, understanding Dutch gift tax rules and the impact of the 10-year emigration rule is essential. By strategically planning the timing of your gifts, you can potentially save thousands of euros in taxes while still achieving your financial goals.