If you own assets in Hungary or are expected to inherit assets in this country, it’s important to understand the legal and tax implications involved in the inheritance process, because even non-residents may be required to pay taxes according to local law.
In Hungary, there are complex rules for the taxation of inheritances and gifts, with significant implications for heirs of assets. Early understanding of Hungarian law and advance planning of wills, residency, and gifts during lifetime can significantly reduce exposure to tax payments when transferring assets between generations.
Beyond that, inheritance tax planning can prevent legal disputes, delays in the inheritance process, and unexpected demands from various authorities.
What’s the Difference Between Inheritance Tax and Estate Tax?
- Estate Tax – Imposed on the deceased’s assets before they are transferred to the heirs.
- Inheritance Tax – Applies to all assets received by an heir.
Inheritance Tax in Hungary
In Hungary, there is no estate tax, but there is an inheritance tax imposed on each heir separately, according to the value of the inherited assets. Inheritance tax in Hungary is calculated based on the market value of the inheritance received by each heir. The inheritance tax rate is fixed at 18%, but when it comes to inheriting residential properties, a reduced rate of 9% applies.
Hungarian inheritance tax applies to all types of assets located in Hungary, regardless of the heir’s place of residence. Additionally, tax liability may also apply to movable assets located abroad if the heirs are Hungarian citizens or residents, unless a similar tax has been imposed and paid abroad.
However, inheritance tax does not apply to real estate properties located outside Hungary.
Exemptions from Inheritance Tax
In certain cases, inheritance will be exempt from tax. Among the exempt assets:
- Assets inherited by first-degree relatives of the deceased, including parents, children, and spouses.
- Assets inherited by stepchildren, foster children, stepparents, or foster parents of the deceased are exempt from tax up to 20 million forints.
- Certain movable assets up to 300,000 forints for each heir.
Gift Tax in Hungary
Gift tax is an important part of planning for the transfer of assets between generations. Often, when property owners are exposed to the amount of inheritance tax, the option of transferring assets as gifts during the testator’s lifetime arises, with the thought that this is preferable to inheriting in the future. However, it should be taken into account that gifts may be taxable at the same or even higher rates than the inheritance tax rates.
In Hungary, there is a gift tax, but in certain cases, assets are exempt from the gift tax. The main exempt assets are as follows:
- Movable assets worth less than 150,000 forints.
- Building plots for residential purposes (provided that a residential property is built within four years of acquisition).
- Gifts on which income tax or social security contributions have been paid.
- Employee benefits provided by the employer that are exempt from personal income tax.
- Gifts given to children or parents of the gift-giver.
The exemption from gift tax applies to the same individuals who are eligible for exemption from inheritance tax.
Therefore, early planning for inheritance tax and gift tax is essential when transferring assets between generations. Proper planning allows you to maximize existing exemptions, significantly reduce tax liability, and ensure that assets are transferred to the next generation in an orderly and efficient manner.
Inheritance Taxation in Israel Compared to Hungary
In Israel, unlike Hungary, there is no estate tax or inheritance tax. However, in certain cases, tax may be imposed on the full value of the inheritance received, such as capital gains tax when selling the asset.
The tax treaty between Israel and Hungary includes provisions that can prevent double taxation. Still, it’s important to plan the reporting and filing accurately to avoid double payment.
To read the Israel-Hungary Tax Treaty in English on the Ministry of Finance website, click here.
Making a Will in Hungary – The Key to Tax Savings and Dispute Prevention
Inheritance doesn’t always transfer smoothly to heirs. Sometimes complex procedural steps are needed to obtain a probate order or permission to realize the assets.
Creating an organized will is not just a matter of personal desire; it is an integral part of estate taxation. A detailed will can ensure that assets are transferred smoothly and efficiently to the heirs. The will should include the wishes of the deceased but must also be adapted to the requirements of the law so that its validity is not compromised.
When drafting a will, it is often possible to choose the law that will apply to it. This choice can have a substantial impact on inheritance planning and its future realization.
Without advance planning, meaning inheritance without a will, the law that will apply to the deceased’s assets will be the law of the deceased’s last and principal place of residence. For example, if the deceased’s last place of residence is in Hungary, Hungarian law will apply to their inheritance in Israel.
If you own assets in Hungary, our recommendation is to make a will to ensure that the transfer of assets is done as smoothly as possible. A will can prevent misunderstandings or lengthy legal processes and ensure that the process proceeds in an orderly manner even after the death of the deceased.
Received an Inheritance in Hungary? 7 Steps for Proper Realization of Inheritance from Hungary
1. Clarification of Factual and Legal Background
First, check the type of asset that is to be inherited, its location, the identity and status of the heirs, the value of the asset, and more.
2. Checking the Timing and Location of Inheritance Realization
Consider whether it’s advisable to realize the asset now and if so, where is it better to realize it – in Hungary or in Israel?
3. Regulatory and Banking Aspects
It is recommended to check the costs of money transfers, whether there is a need to open an account in Hungary or another country for the purpose of transferring funds, what approvals are required, etc.
4. Planning the Asset Transfer
Consider whether to transfer the asset itself or its proceeds, and what the implications are in terms of tax, exemptions, deductions, etc.
5. Avoiding Double Taxation
In light of the existence of a double taxation prevention treaty, it is recommended to check whether there is a mechanism for crediting tax paid in Hungary against tax liability in Israel. Make sure that the reporting is done correctly and accurately to avoid double payment.
6. Checking the Future Effects on the Asset
It is recommended to examine the future effects on the asset; for example, a future sale of the asset will often be subject to capital gains tax in Israel as well.
7. Transferring the Asset to Israel
Performing all necessary actions, submitting documents, handling matters with banks in Hungary and Israel, and executing the asset transfer.
How Can We Help?
The goal is to transfer the inheritance to heirs in Israel in the most tax-efficient way, while addressing legal issues in Israel and Hungary, and issues related to banking and regulation. For example, whether it’s better to realize a certain asset in Hungary or transfer it to Israel; how to transfer inheritance funds to a bank account in Israel; how to use various exemptions between heirs; whether to give gifts during lifetime; whether to establish a trust; and more. Strategic planning, according to law and tax treaties, is essential to minimize tax liabilities.
Nimrod Yaron & Co. has extensive experience in personally and professionally accompanying Israelis with assets or inheritances in many countries around the world, including Hungary, from the first stage of planning, through dealing with authorities in Hungary and Israel, to transferring inheritance funds to the heir’s bank account.
We work with all relevant professional entities in Hungary and Israel and offer legal solutions both in terms of taxation and banking, tailored to the circumstances of each case.
If you have inherited an asset or wish to bequeath assets in Hungary in the future, our team of lawyers specializing in international taxation and inheritance law will be happy to advise you on this matter – contact us for an initial consultation.
Q&A
Do I need to pay tax in Israel on an asset inherited from Budapest?
No. There is no inheritance tax in Israel. However, capital gains tax may apply after the sale of the property. It is important to check the recommended date for selling the inherited property.
Am I required to pay inheritance tax in Hungary if I inherited an asset there?
Possibly – it depends on whether the asset is located within Hungary’s borders, or if it’s a specific movable asset inherited from a Hungarian citizen or resident. Additionally, it’s important to examine whether the asset or its value falls within the provisions of the law that are exempt from inheritance tax, either through dedicated exemptions or through relief applicable to certain types of assets.
Is a gift given to family members subject to tax?
Gifts to parents and children are exempt from tax. However, gifts to other people may be subject to tax, depending on the value and type of asset.
Why is it important to plan the transfer of assets between generations in advance?
The transfer of assets between generations from abroad is not just a family matter but also a tax and economic issue. Early planning, considering legal issues in Israel and abroad, can save a lot of money and prevent legal complications.
How can the inheritance be realized optimally and save tax?
To realize the inheritance optimally and save unnecessary tax payments, all tax options should be examined, including utilizing exemptions, planning gifts, establishing companies, trust funds, and more.
How can the inheritance tax liability in Hungary be reduced?
Through early tax planning, which includes drafting a will, utilizing exemptions, giving gifts during your lifetime, and more, you can significantly reduce your tax liability.
Is it better to give an asset as a gift during lifetime or to bequeath it?
The choice between giving a gift and bequeathing depends on the circumstances of the case. Sometimes a gift will be taxed similarly to an inheritance. Therefore, the legal and tax aspects should be examined before making a decision.
What are the implications in case there is no will?
In the absence of a will, the inheritance will be divided among the legal heirs according to Hungarian inheritance law.
What documents are required for the process of realizing an inheritance in Hungary?
To realize an inheritance in Hungary, documents such as a death certificate, a will (if one exists), copies of the heirs’ ID cards, property ownership documents, bank account confirmations, and more are required.
How long does the process of realizing an inheritance in Hungary take?
It should be considered that the process of realizing an inheritance in Hungary can take between several months and a year or more, depending on the complexity of the testator’s estate, the number of heirs, the existence of a will, and other factors.
