Wealth transfers include both gifts, which are transfers of assets made voluntarily during the donor’s lifetime, and inheritances, which are transfers of assets that occur after a death.
Inheritance regulations vary from country to country in Europe. Each country has its own inheritance laws and regulations, which determine to whom assets pass, how they pass to heirs and what tax rates apply. In France, Belgium and Germany, inheritance rules are based on the principle of the reserved portion of the estate for direct descendants. In the United Kingdom, on the other hand, there are no statutory rules of succession and the deceased is free to dispose of his or her property as he or she sees fit. In France, Belgium and Germany, inheritance taxes are calculated on the basis of the assets received by each beneficiary, as well as any gifts made by the donor during his or her lifetime. In the United Kingdom, on the other hand, inheritance tax is calculated on the basis of the deceased donor’s total assets, as well as any gifts made during his or her lifetime.
According to INSEE, in France, the total amount of transfers in 2020 was about 260 billion euros, with about 80% of transfers in the form of real estate. In Germany, a study by the German Statistical Institute (Destatis) published in 2020 indicates that the amount of gifts and inheritances in Germany in 2018 was about 108 billion euros. Donations accounted for 44 billion euros, while inheritances accounted for 64 billion euros.
How old are the recipients and donors?
A donation can be made at any age, whereas an inheritance only occurs at the death of the deceased. In France, according to the 2018 Life History and Heritage survey, only 8% of households report having ever made a donation during their lifetime. However, this proportion varies considerably depending on the age of the individuals. It is less than 3% among people under 60 years of age, but increases significantly beyond that age: 12% among those aged 60 to 69 and 24% among those aged 70 and over.
In France, the average age of the donees, those who receive the donation, is about 48 years old, while French donors are on average 73 years old, according to the Wealth Transfers and Inheritances survey. In Belgium, the average age of the donee is 44, while the average age of Belgian donors is 68. In Germany, donors are younger with an average age of 60, while donees are younger with an average age of 38.
Children are the main beneficiaries of donations in the countries studied, but there are significant differences in the deductions granted depending on the country.
In France, the amount of the deductions for gifts and inheritances varies according to the relationship between the donor or the deceased and the beneficiary. For example, for children, the allowance is 100,000 euros every 15 years. For grandchildren, the allowance is 31,865 euros every 15 years. For siblings, on the other hand, the allowance is only 15,932 euros every 15 years.
In Germany, the deductions are more advantageous for direct heirs than for other beneficiaries. Thus, children benefit from an allowance of 400,000 euros on the inheritance of their parents. Grandchildren are entitled to an allowance of 200,000 euros, while siblings are only entitled to an allowance of 20,000 euros.
In Belgium, the tax allowances are also different depending on the relationship. Children are entitled to an allowance of 250,000 euros on the inheritance of their parents. Grandchildren are entitled to an allowance of 125,000 euros, while siblings are only entitled to an allowance of 31,000 euros.
Finally, in the United Kingdom, the basic allowance for inheritance is £325,000. Above this amount, assets are taxed at 40%. However, spouses or civil partners are exempt from this tax, and it is possible to pass on part of the allowance to a spouse or civil partner. Children also benefit from an additional allowance of £175,000 on their parents’ inheritance.
The Baby Boom generation, born after the Second World War (1946 and 1964), experienced particular economic conditions, which favored the acquisition of greater wealth than that of the pre-war generations, which represent the majority of deaths and inheritances over the age of 75. With the advancing age of the Baby Boomers, the amount of inherited wealth should increase in the next 10 to 20 years.