Zero Inheritance Tax – another good reason to invest in real estate in Czech Republic

Post date: Jun 21, 2017 9:52:31 AM

Zero Inheritance Tax – another good reason to invest in real estate in Czech Republic

We have already described, in previous articles, the reasons why purchase of rental and other real estate properties in Czech Republic can be incredibly lucrative investment. Here are some useful posts on this topic:

In this post we introduce another good reason for purchasing rental property in Czech Republic – the zero inheritance tax. The Inheritance tax is simply a tax imposed on a property inherited from an individual who passed away. Usually the sum of inheritance tax is calculated on the basis of the overall value of inherited property.

In the Czech Republic, since 2014, the inheritance tax has been abolished. This relatively new legislation is very beneficial for real estate investors whose purpose includes providing a secure future for their offspring. Why? Because owners of real estate located in the Czech Republic will never have to worry about inheritance taxes paid by their children (or other relatives) after they pass away.

How to minimize costs of inheritance procedure in Czech Republic

You already know that inherited property in Czech Republic is free of taxation. So perhaps you are wondering whether there are any other hidden costs for inheriting real estate in Czech Republic. Well, there can be costs related to inheritance procedure to which the inherited real estate is subject. But if you know how to make use of existing Czech legislation, these costs can be minimized, and effectively eliminated. Here is how to do it.

In the Czech Republic any property, prior to being legally inherited by the beneficiary, is subject to inheritance procedure performed by a public notary. The beneficiary has a legal obligation to pay the notary compensation after the inheritance procedure is concluded. This compensation is calculated on the basis of the estimated value of the inherited property (e.g. on the basis of the value of an inherited house set by professional state assesor). Accordingly, it is highly recommended that owners transfer their real estate to their beneficiaries as a gift in life, so that hey might decrease the valuation of the inheritance and consequent financial compensation to the notaries. According to Czech legislation immediate family members may receive gifts, including real estate, free of tax.

How to sell inherited real estate without paying income tax

Even though inherited real estate is not subject to inheritance taxes, it is subject to income taxes after being sold by the beneficiary. Normally, capital gains on the sale of real estate property are taxed as income in Czech Republic. There is, however, an exception - if the owner has held the real estate for at least 5 years before sale, income from transaction is not subject to income tax. If the beneficiary wishes to sell inherited real estate, this time period of 5 years is shortened by the period of time which the testator possessed the property prior to his death. For example, if the testator possessed a house for 2 years prior to his death, the beneficiary has to possess it for at least for 3 additional years prior to selling it to avoid income taxes.

Inherited real estate in Czech taxation system

Here is a short overview of taxation related to inherited real estate property in Czech Republic:

- Inheritance tax. Taxation on inherited property was abolished in 2014.
- Real estate tax. The beneficiary shall submit tax return concerning inherited real estate upon the end of January in the year following his registeration as a new real estate owner in the Czech Republic real estate cadastre (as a result of inheritance procedure). This will be the first year in which the beneficiary pays annual real estate tax.
- Real estate acquisition tax. There is no real estate acquisition tax imposed on inherited property. This tax has, since 2016 been levied on the buyer after he acquires the real estate property by purchase.
- Income tax. There is no income tax imposed on inherited property. However the beneficiary would be liable for payment of income tax, if he decides to sell inherited property prior to the passage of 5 years since purchase by the testator (as described above).

Note: you can find detailed information about all type of taxes mentioned above on our website.

As you can see, after you purchase a real estate in Czech Republic, you don´t need to be afraid of unpleasant surprises in regards to taxes in future. And neither do your family.

Investing in real estate in Czech Republic is a very attractive business but also very complicated, if you are not a local. We can help. Read our insights gained from our personal experience on Czech real estate market. And if you want to get started investing in Czech real estate fast, directly contact our consultants.