When is a gift an advancement of inheritance, and when is it treated as a gift?
In most cases, the giving of a gift to a child is treated as an advancement. So, if you give a gift to your natural heir – to your child or grandchild, etc. – this is normally considered an advancement.
In these circumstances, too, the gift recipient must submit a gift tax return and pay gift tax.
A gift defined as an advancement will be accounted for when the distribution of the death estate is carried out and thereby it affects the assessment of inheritance tax.
Example: Pirjo has two sons, Pekka and Antti. She owns a summer house and decides to donate it to Pekka. Pekka completes and submits a gift tax return and pays gift tax assessed under the valuation rules of the 1st tax bracket.
The summer house that he received will be taken into account later, when the Tax Administration assesses inheritance taxes. Because Pirjo did not donate anything to Antti during her lifetime, the part of her estate’s property going to Antti will be greater than the part going to Pekka.
When is a gift not treated as an advancement?
In general, gifts are not considered advancements in the following circumstances:
- You donate assets of equal value to each one of your direct heirs.
- You donate an asset to your only direct heir.
- You, the donor, have set a specific condition, recorded in writing in a deed of gift, that the gift is not to be deemed as an advancement.
However, if the gift had not been designated as an advancement, the gift will be accounted for in the assessment of inheritance tax if the gift was received maximally 3 years prior to the donor’s date of death.
Example: Ville’s only child is Sanna, his daughter. He gives her €10,000 as a gift. Sanna completes a gift tax return and pays gift tax assessed under the valuation rules of the 1st tax bracket. Because there are no other direct heirs besides Sanna, the gift Sanna received will not be taken into account when the Tax Administration assesses her inheritance tax.
Contracts of sale with a price below market may be seen as a gift
If you sell property to a direct heir at a low price, and the transaction amounts to a gift-like sale, it may later be treated as a gift, and valuated again during the distribution of the estate that you leave behind. However, if the selling price is the same as the property’s fair market value, the sale cannot be deemed as an advancement.
When you receive a gift which is treated as an advancement
If you receive a gift treated as an advancement:
- Complete and submit a gift tax return, following the instructions
- The Tax Administration will send you a decision concerning gift taxation. Instructions for payment are included.
The advancement is subject to tax in the same way as any other gifts are.
Frequently asked questions
You are allowed to make one person a tax-exempt gift, worth less than €5,000, every 3 years.
However, it is important to note that after you die, the gift will be accounted for in the assessment of inheritance taxes if the gift was received 3 years prior to your date of death.
Read more: How much can you donate free of tax?
Advancements are gifts. Accordingly, they are subject to gift tax. Family relationships between the person giving the gift and the recipient, together with the gift’s value, determine the percentage of tax.
The page on the tax.fi website containing information about tax brackets also has a schedule and a calculator for gift taxes. You can use it for making an estimate.