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What happens and what should I do
Have a great summer!
I'm constantly being contacted by people who have questions about inheritance tax and who fear the reintroduction of this tax, which was abolished in 2014. This year is an election year and several smaller political parties have inheritance tax in their party programmes. The composition of the Storting after the election on 13 September will determine whether such proposals will have an impact. Although the largest parties on the red-green side, SP and Ap, state that they do not want the introduction of inheritance tax, the smaller parties SV, Rødt and MDG will probably be able to exert considerable pressure in any government negotiations. With such horse-trading, it's hard to know what the outcome will be.
The status now is uncertainty. We know what we have. We don't know what we'll get, and we don't know what other tax consequences any introduction of inheritance tax will have. Remember that when the inheritance tax was abolished, other parts of the tax system were also reorganised. Among other things, it had an impact on the taxation of gains on the realisation of property. Previously, the heir received a new input value (purchase value) corresponding to the value at the time of inheritance. After the inheritance tax disappeared, the heir now takes over the deceased's input value, which is often much lower. For a number of people, this actually resulted in additional taxation on the sale of plots of land and second homes, for example.
What do these political parties want to achieve with inheritance tax? The majority of the population hardly has much to fear. The proposals for the introduction of inheritance tax suggest a high basic deduction of NOK 5 million for each heir. If a testator has two heirs, it will affect fortunes over 10 million. For a married couple with two children, the proposed inheritance tax will affect family wealth in excess of NOK 20 million. The proposal to introduce inheritance tax is intended to affect the «rich».
So what should we do? What smart moves can be made, and what should you not do?
Uncertainty about what we will get makes this very difficult to answer. I constantly see colleagues talking about this in the tabloids with headlines such as «Hurry up and do the generational change» and similar variants. I think this is greatly exaggerated for most people. I agree that if you're already planning to carry out a generational change, now might be the time to do it this autumn. A generational change involves much more than avoiding inheritance tax. It's about handing over the helm of the ship to the next generation, and the timing of this should be carefully considered. This is normally something that is planned over time. Who should take over? Should siblings run the business together, should siblings own property together or should they be compensated in some other way? These are questions that require good conversations and good agreements. Remember that the new Inheritance Act requires that if an advance on inheritance is to be reduced in the event of a later inheritance, this must be agreed when the advance is made; you can no longer decide this unilaterally in a subsequent will. .
In terms of inheritance tax, the cost of generational change is now NOK 0. However, depending on the composition of the assets, other costs may be incurred. For example, if the assets mainly consist of property, a transfer to the next generation will trigger stamp duty. Stamp duty is waived on receipt of a non-material inheritance in the case of ordinary inheritance. If you now accelerate the generational change and the inheritance tax remains untouched, you will have paid an unnecessary stamp duty. In addition, there is a risk of capital gains tax on a later sale if the new owner does not live in the transferred property.
Today, the transfer of share values and money will not trigger any other additional expenses, but you give up control and management of the shares and money. If you have a need for these assets in the future, you need to think carefully. If it's time to give up your assets, go for it.
Property assets under 10 million, where all or part of the assets consist of property, should hardly be transferred now due to stamp duty.
The 2021 election will be exciting for those of us who dedicate our lives to working with inheritance law. Inheritance affects us all. My best advice to everyone is to keep an eye on the election. Pay close attention to the debate after the election, and be prepared to act when you know more about the consequences. If the majority in parliament is in favour of inheritance taxation, this will require a new law or possibly an amendment to the Tax Act. Legislative work normally takes time, but can also be enacted urgently. If you have private assets or company assets in excess of NOK 10 million, you should start thinking about generational change so that you can press the button before it's too late. At Advokatfirmaet Halvorsen & Co, we have extensive experience of inheritance and succession planning. Get in touch with us for a closer chat.
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Monica Melgård
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