Published: May 22 2023
Hungary follows a different set of rules when it comes to estate tax. With its unique taxation system, it is essential to understand the taxes levied on the estate of a deceased person in Hungary, as this can have a significant impact on your finances.
In this comprehensive blog post, we delve into the nuances of the Hungarian estate tax system, providing you with essential information, including the basis of taxation, tax rates, exemptions, and filing requirements.
Basis of Taxation: Inheritance and Gift Tax
Estate tax, as we know it in some other countries, doesn't exist in Hungary. Instead, what we find is an amalgamation of inheritance and gift tax, referred to in Hungarian as "öröklési és ajándékozási illeték." Both taxes share the same tax rates and, in most cases, the same tax exemptions.
The primary difference between inheritance and gift tax lies in the triggering event. Inheritance tax is due when a person acquires assets from a deceased person, whereas gift tax arises when a person receives assets from a living person as a gift.
To determine the tax amount, Hungary uses a progressive taxation model, where the tax rate increases with the size of the taxable estate.
Tax Rates: Determining How Much You Owe
Depending on the relationship between the deceased and the inheritor, the inheritance tax rate varies between 0% to 40% in Hungary. Tax rates are determined based on the value of the inherited asset and the relationship between the deceased and the beneficiary.
Here's a breakdown of the tax rates based on the beneficiary's relationship to the deceased:
- Close relatives (e.g., spouse, child, sibling) and registered life partners:
- Up to HUF 20,000,000 ($66,000): 0%
- Over HUF 20,000,000: 9%
- Other relatives:
- Up to HUF 10,000,000 ($33,000): 0%
- Over HUF 10,000,000: 18%
- Unrelated beneficiaries:
Exemptions: When Are Inheritances Tax-Free?
Under the Hungarian tax system, certain assets are exempt from inheritance tax. These exemptions primarily apply to close relatives and registered life partners. Some of the key exemptions include:
- Fully exempted: primary family home, agricultural land, or family business inherited by a spouse, child, or registered life partner if used for at least five years.
- Partial exemption: if the inherited assets include other types of real estate, securities, or movable property, half of the average value of these assets is tax-free, provided that the total value inherited does not exceed HUF 150 million ($495,000), and the assets must be held for at least five years.
Filing Requirements: Complying with the Deadline
Inheritance tax returns must be filed within 30 days of the date when the tax obligation arises. In most cases, this is the date of death. However, if the inheritor resides abroad or is an unspecified legal successor, a 60-day deadline applies.
The tax office will then assess the tax payable based on the return. The tax, along with any interest, is payable within 15 days from the tax assessment. Late filings may result in penalties and interest.
Conclusion: Planning for Estate Taxes in Hungary
While the Hungarian inheritance and gift tax system may seem overwhelming at first glance, an understanding of tax rates, exemptions, and filing requirements can help you navigate the process effectively. It is crucial to consider these taxes when managing your estate or receiving a gift >>> to ensure compliance with the Hungarian tax regulations.
Special Considerations for Non-Residents
Foreign nationals who inherit assets in Hungary are subject to the same tax rates as Hungarian citizens. However, non-resident beneficiaries may claim a tax credit for taxes paid in their country of residence on the same inherited assets to avoid double taxation. Additionally, certain bilateral agreements with Hungary may provide lower tax rates or exemptions for non-residents.
Making Use of Legal Tools: Wills and Trusts
To efficiently manage inheritance tax in Hungary, it is crucial to plan your estate and take advantage of legal tools, such as wills and trusts. A properly drafted will can ensure that your assets are distributed according to your wishes and can help beneficiaries claim applicable exemptions and tax credits.
Trusts, although uncommon in Hungary, can be another useful vehicle for managing estate taxes. Establishing a foreign trust to hold Hungarian assets may provide specific tax benefits, depending on the jurisdiction and structure of the trust. However, it is essential to consult with a legal and tax advisor to determine the best course of action for your unique situation.
Final Thoughts: The Importance of Professional Advice
Understanding the intricacies of Hungary's inheritance and gift tax system is key to managing your estate efficiently and ensuring your loved ones receive their inheritances without undue burden. Seeking professional advice from qualified estate planners, lawyers, and tax experts is crucial in navigating the complex tax landscape with confidence.
In conclusion, while the Hungarian inheritance and gift tax system can be overwhelming, clear knowledge of tax rates, exemptions, and filing requirements is vital for successful estate planning. Knowing your obligations, employing legal tools like wills and trusts, and seeking professional advice can help ensure a smooth transition of wealth and assets to your beneficiaries.