Experts say planned cuts could lead to scrapping of inheritance tax

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A number of Finnish experts in tax law say that plans to raise the maximum level of tax-free inheritance from the present EUR 3,500 to EUR 20,000 would push Finland toward the European mainstream.
      On the basis of taxation data from 2005, it would appear that about half of those inheriting money from a deceased relative would be freed from the obligation of paying inheritance tax. The greatest benefit on average will be to younger heirs with lower incomes, who tend to inherit smaller sums of money.
     
Experts feel that the package could be a sign that the whole inheritance tax is on its way out.
      "If this kind of a reform is implemented, political pressure can become so great that in the elections four years from now there will be a promise to eliminate inheritance taxes completely", says Heikki Niskakangas, Professor of Tax Law at the Helsinki School of Economics.
     
Finance Minister Jyrki Katainen (Nat. Coalition Party) announced the timetable of the change in an interview with Alma Media. The lower limit of for taxable inheritance is to be increased at the beginning of next year. Corporate assets shifted from one generation to the next are to be made tax-free a few months later, at the latest.
      Katainen said nothing about possible changes to the gift tax.
      The Ministry of Finance began preparations for its budget policy lines on Tuesday, and Katainen is expected to present the main points later Wednesday. It is estimated that the planned changes to inheritance taxation will cost the state EUR 160 million in lost tax revenue.
     
Experts, such as Seppo Penttilä, Professor of Tax Law at the University of Tampere, note that Finland's current minimum level for taxable inheritance, EUR 3,500, is relatively low by international standards.
      He says that the planned EUR 20,000 limit is "perhaps an international average".
      Both Penttilä and Niskakangas are pleased at plans to ease the tax burden on spouses of the deceased, and their underage children. The Finnish Taxpayers' Association also welcomes the change.
     
Both professors say that the lifting of inheritance taxation from corporate assets constitutes a considerable departure from established policy.
      "From the point of view of fairness, it raises the question, whether or not taxes should be lifted from all property", Penttilä says.
      Dr. Pauli K. Mattila, deputy managing director of the Central Chamber of Commerce, says that it does not seem fair that one type of wealth would be taxed differently from others.
      "However, fairness is not the only explanation in taxation. This can also be argued on the basis of business policy", he says. In Mattila's view, the reforms could be a first step on the way to lifting the entire inheritance tax.
     
Niskakangas fears that after the lifting of taxation on corporate assets, inheritance taxation as a whole will begin to feel so unfair that there will be a promise to eliminate it.
      He says that the greatest beneficiaries of such a move would be those with more wealth, who are better able to avoid inheritance taxation by moving their private assets into corporate funds.
      Niskakangas does not see any good reasons for the change. "It is a purely political decision", he says.


Previously in HS International Edition:
  Finance Minister plans changes to inheritance taxation (30.7.2007)

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