Tax return and death: inheritance rights

When someone dies in the Netherlands, it is common for their surviving partner to inherit their estate. Any children are also in line to receive the inheritance, but they only come after the surviving partner and would only receive the inheritance after that surviving partner dies. For married people this is provided by law as ‘statutory distribution’; cohabiting partners can arrange this in a will.

In this article, we will be dealing with inheritance claims that have not yet fallen due. This is often the case when there is a surviving parent, but the claim may also be against a step-parent or the deceased parent’s cohabiting partner.

Another example of inheritance claims is a usufruct will; this could allow the house to be in the child’s name, but grants the parent’s surviving partner the right to live there, for example.

In the case of inheritance claims, the child has a claim, but doesn’t actually get anything tangible. In fact, it’s often uncertain whether the claim will ultimately lead to anything for them. Usually, the surviving partner is entitled to use the assets first, and then the child will simply get anything left over.

In practice, it is often tricky to identify the extent of the children’s claims. This can cause a lot of problems when the surviving partner dies. Read all about it in our article ‘Estate planning: what surviving partners need to think about’.

The law applies a broad definition to partner when it comes to inheritance law. It could be a parent, but also a step-parent or a parent’s cohabiting partner. The law also takes into account a situation where a child dies before their parent does:

• In that case, it would be grandchildren who receive the inheritance instead. The grandchildren’s claim would also be disregarded on the tax return.
• An inheritance claim will have been left to the children (grandparent to the grandchildren).

All in all, this is a logical arrangement that avoids a lot of hassle in practice. For example, it makes filling in your annual income tax return a lot easier. But there are still a number of things to watch out for:

The children’s claims can be disregarded only for as long as those claims are not due. Often, a will covers situations where the claim will become due earlier than after the surviving partner dies, including if the surviving partner remarries or has to go into a care facility. As soon as a claim becomes due, the children must declare their claim as assets in box 3. This applies even if the children do not actually want to exercise their claim. The exception here is if the surviving partner and the children agree in writing to postpone the date when the claim falls due.

Sometimes, interest is credited to the children’s claims. This interest, like the claim itself, can be disregarded in box 3, but the children may have to pay tax on any interest accrued up to 1 January 2001. In this situation, where a parent died before 2001, the surviving partner is still alive. Problems arise, though, if the children’s claim is paid while they are still alive or if the surviving parent has appointed heirs other than the partner who dies first. If you’re facing this kind of situation, we recommend you speak to a tax adviser about what the consequences could be.

This is a way that allows grandparents to leave an inheritance to their grandchildren. The most common situation is that a grandparent leaves a sum to a grandchild, which they receive after the grandchild’s parent dies. The grandchild then has an inheritance claim against their parent, which must be declared in box 3 as assets; this could affect their income tax and allowances. This problem also occurs when there are claims between aunts/uncles and cousins, for example.

Children also have a claim, typically against their parents, when gifts on paper are made. However, these must be declared for income tax in box 3 of their tax returns. The child must declare the claim as assets in box 3 and the parent may deduct the liability in box 3. This differs from an inheritance claim because the child actually receives 6% interest with a gift on paper, so the child has to pay tax on this.

In most cases, inheritance claims do not need to be declared for income tax, which helps keep things nice and simple. But that doesn’t mean you should forget about these claims, otherwise this can cause problems in the future when the surviving parent dies. It’s also important to know when exceptions apply, because there can be significant consequences if you get things wrong.