Estates must pay income tax if they receive income
The parties to a death estate have responsibility for fulfilling the estate’s tax obligations up to the time when the estate is distributed and treated as having ceased.
To pay the taxes imposed on a death estate is the shared responsibility of the heirs, of the beneficiaries of a general legacy, and of the surviving spouse (because of matrimonial property rights), up to the time when a division is carried out. If you inherit only a specific asset by virtue of a last will and testament, you are not regarded as a party to the estate.
What action must be taken?
Estates of deceased persons must carry out the following:
- file tax returns on estate income to the Tax Administration for purposes of taxation
- check the entries recorded on the pre-completed tax return received by the estate
- submit the estate’s bank account number to the Tax Administration, and notify of a changed account number, in order to ensure that any tax refunds can be received
We send the estate a pre-completed tax return every year in spring, up to the time when the estate ceases. The mailing address of the pre-completed return is the address of the party indicated by the deed of estate inventory.
What does a death estate consist of?
An estate is comprised of the decedent’s property, financial and other assets, and debts. If the above will later be exchanged for other property, this will also be part of the estate – for example, if the decedent owned a house and the estate has sold it after the decedent passed away, the proceeds received, and any purchases made with such proceeds, are regarded as belonging to the estate.
The surviving spouse’s property and assets are not part of the death estate even though the decedent would have had marital rights to them. If the surviving spouse co-owned some property together with the decedent, the part that the surviving spouse owns does not belong to the estate.
Death estates cease to exist when they are distributed
Death estates cease to exist when all the estate’s property and assets are distributed to the inheritors. Death estates do not cease if only a part of it is distributed. To make an estate cease, deliver a photocopy of the agreement of distribution of the inheritance to the Tax Administration.
If an estate owns no property that could be distributed, there is no need to deliver a photocopy of the agreement to the Tax Administration.
When the year when the inheritance was distributed has ended, a pre-completed tax return will be sent to the estate for the final time. After that, the parties to the estate must file tax returns on the income they receive and on the property they have. This way, the estate is no longer a tax subject.
If you are the only party to a death estate, the estate’s existence for the Tax Administration’s purposes will cease when you have delivered a copy of the deed of estate inventory to a tax office. The property is treated as having been transferred to you immediately after the decedent’s death. If the estate receives any income after the decedent’s death, you are treated as the beneficiary of such income, and you pay tax on it.
Frequently asked questions
If death estates operate a business activity, they will be taxed in the same way as partnerships when 3 years have elapsed after the end of the year when the decedent died. At this point, the income from the business will be distributed to the parties to the estate, and taxed accordingly as the personal income of each one of them.