You may be wondering…

• Do gift and inheritance taxes still exist?

• What is the legal difference between a gift and an inheritance?

• Are both subject to income tax?

• Do the exemption rules differ?

Clients ask me…

Do gift and inheritance taxes still exist?
No – since 2014, both taxes have been abolished, and their treatment is included under personal income tax.

What is the legal difference between a gift and inheritance?

• Gift: a voluntary transfer of property between living persons, confirmed by a gift agreement.

• Inheritance: arises only after the death of the decedent, with property passing to heirs by law, will, or inheritance contract.

Are the tax rules different?
No – in both cases, income tax applies, but there are exemptions for close family, siblings, spouses, and household members.

Gift vs. inheritance in a nutshell

• Both fall under income tax.

• Both offer broad exemptions for family and close individuals.

• The difference is mainly legal: gift = agreement, inheritance = court decision confirming succession.

Main risks and mistakes

1. Confusion between old and new rules. People often refer to “inheritance tax,” which no longer exists.

2. Underestimating tax liability for gifts from non-relatives. Even without “gift tax,” it’s still taxable income.

3. Assuming inheritance is always tax-free. It is exempt only from close relatives; otherwise, it may be taxable.

4. Unclear gift agreements. For gifts, the contract is crucial; for inheritance, the court’s ruling decides.

Step-by-step process

1. Determine if it’s a gift or inheritance.

2. For gifts, draft a proper agreement and verify tax exemptions.

3. For inheritance, wait for the court ruling confirming succession.

4. If it’s from a non-exempt person, prepare to include it in your income tax return.

Real-life example

A client received a car from his uncle – the gift was exempt, because uncles fall within the collateral line. Another client inherited real estate from a distant relative (a cousin). Because the decedent was not in the exempt category, the value of the inheritance had to be included in the client’s tax return.

Why to be cautious

Even though gift and inheritance taxes no longer “exist,” the tax office still monitors income and property transfers. Relying on outdated terminology can lead to unexpected back taxes and penalties.

Lawyer’s recommendation

• Don’t rely on “folk wisdom” that gifts and inheritances are tax-free. That applies only to exempt categories.

• For real estate, always check whether the transfer qualifies for exemption.

• When in doubt, file a tax return – it’s safer than risking penalties.

Checklist:
☑ I know whether it’s a gift or inheritance
☑ I verified if I fall into the exempt category
☑ For “non-relatives,” I expect tax liability
☑ For real estate, I check the fair market value

FAQ

Do gift and inheritance taxes still exist?
No – since 2014, they have been merged into income tax.

Are there different tax rules for gifts and inheritance?
No – the main difference lies in their legal nature.

Do I have to pay tax on an inheritance from a distant relative?
Yes, if the relative is not in an exempt category.