Insurance indemnities in inheritance taxation

The estate or close relatives (such as spouse, children, grandchildren or spouse's children) of a deceased person may be entitled to insurance indemnities due to that person's death. These insurance indemnities are subject to inheritance tax.

The estate or relatives must also pay inheritance tax on indemnities based on individual pension insurance if this pension insurance was taken out before 18 September 2009.

The insurance company sends you a letter that states the amount of indemnity and contains important information on the taxation of insurance indemnities. Make sure to take the letter with you to the estate inventory meeting.

BENEFICIARY: HOW TO REPORT INDEMNITIES

Enter the indemnities in the estate inventory deed under a separate heading, such as "Insurance indemnities received due to death".  Include the following:

  • the clause of the insurance contract on who the beneficiary of the insurance is
  • the recipient of the indemnity.
  • the insurance company that paid the indemnity
  • policy number or other reference
  • amount of indemnity payment
  • date of payment (if known at the time when the estate is inventoried)

Do not list insurance indemnities under the deceased person's assets in the deed.

ESTATE: HOW TO REPORT INDEMNITIES

Enter the insurance indemnities under the deceased person's assets in the estate inventory deed.
Include the information that the insurance indemnity was paid to the estate. Also state the following:

  • the insurance company that paid the indemnity
  • policy number or other reference
  • amount of indemnity payment
  • date of payment (if known at the time when the estate is inventoried)

Taxation of insurance indemnities and entering indemnities in estate inventory deed

Insurance indemnities are treated as capital income for the estate and close relatives as far as the indemnity payment corresponds to the insurance's savings amount. Tax paid on capital income can be credited in inheritance taxation.

The part of the indemnity payment that exceeds the savings amount is subject to inheritance tax in the same way as any other insurance indemnities paid due to death.

How to list the indemnity in the estate inventory deed

In addition to the information described above, the estate inventory deed should state

  • whether the indemnity is based on an indiviudual pension insurance
  • whether the insurance was taken out before or after 18 September 2009.
  • If the insurance was taken out on 18 September 2009 or after, state
    • whether the indemnity is higher than the pension insurance's savings amount
    • the part that exceeds the savings amount, if any.
  • List the income tax payable on insurance indemnities under the estate's debts. Enter the full amount of the indemnity payment without deducting the tax withheld on it.

If an insurance indemnity or a part of it is tied to the payment of home loan in the event of death, this is known as a payment protection insurance. If a debt is paid with payment protection insurance, the debt is not deductible in inheritance taxation like the deceased person's debts normally are. No inheritance tax is collected on payment protection insurance.

If the insurance indemnity is higher than the amount of debt, the indemnity payment is treated like any other insurance indemnity.

How to list insurance indemnity in the estate inventory deed

In addition to the information described above, the deed should state

  • which one of the deceased person's debts the insurance indemnity will be used to cover
  • whether the debt is paid off entirely with the insurance indemnity. Any exceeding amount must be clearly stated.

Inheritance tax must be paid on

  • financial support comparable to insurance indemnities paid out due to death and paid by the state, municipality or pension insurance company or other corporate entity under public law
  • burial assistance based on insurance, and comparable financial support that was received.

Burial assistance paid by municipality or parish is not subject to inheritance tax because such assistance is not based on an insurance and it is not comparable to insurance indemnity.

How to list financial support in the estate inventory deed

In addition to the information described above, the deed should state

  • the payor of the financial support
  • the recipient
  • the grounds for the financial support
  • the amount of the support
  • the date of payment.

The surviving spouse may have life insurance or pension insurance which do not pay indemnity in the event of their spouse’s death. 

If the spouse’s insurance is part of matrimonial property, the insurance must be listed in the estate inventory deed under the spouse’s assets and valued according to its value on the date of the spouse’s death. Income tax debt related to the insurance contract can be deducted from the contract’s value.

If the decedent died before 1 January 2018, insurance indemnities paid out due to the decedent's death are exempt from tax up to €35,000. Neither payment protection insurances nor insurance idemnities that correspond to the savings amount of an individual pension insurance include this €35,000 tax-free portion.

If the decedent died on 1 January 2018 or after, the insurance indemnity does not include the tax-free portion.

 

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