Inheritance at Risk: The Tax Trap Facing Hungarian Families with Children Abroad

Inheritance between direct relatives is generally tax-free in Hungary, meaning no inheritance tax applies when children inherit from their parents. However, this simplicity quickly disappears when cross-border elements are involved — such as heirs living abroad or assets located in other jurisdictions.

In these situations, careful planning becomes essential to avoid unexpected tax burdens during an already difficult time.

When Families Become International

It is increasingly common for Hungarian families to have an international footprint. Parents may remain in Hungary, while children move abroad — to countries such as Germany, France, the Netherlands or the United Kingdom. At the same time, family wealth is often diversified across borders, including:

• Holiday homes in Spain or Croatia

• Bank accounts or investments held in Austria or other jurisdictions

While this reflects modern mobility and investment strategies, it also introduces complex tax implications upon inheritance.

No Protection from Double Taxation

Unlike income tax, inheritance taxes are generally not covered by double taxation treaties. This means that multiple countries may claim taxing rights over the same inheritance, potentially resulting in double or even multiple taxation.

When the Heir Lives Abroad

In many countries, inheritance tax liability depends on the heir's residence.

• Germany
  If the child is a German tax resident at the time of the parent’s death, the inheritance is taxable in Germany — regardless of where the assets are located.
  Although a €400,000 exemption applies, tax rates range from 7% to 30%, resulting in a significant tax burden.

• France
  Tax may apply if the heir is resident in France and has lived there for at least six of the previous ten years. As in Germany, taxation may extend to the entire inherited estate, regardless of location.

• United Kingdom
  Tax exposure may arise if the heir has lived in the UK for more than 10 of the past 20 years.

By contrast:

• The Netherlands and Denmark do not base inheritance tax on the heir’s residence

• Sweden has abolished inheritance tax entirely

When Assets Are Located Abroad

The location of assets also plays a key role.

Hungarian rules:

• Do not apply to foreign real estate

• Apply to movable assets abroad only if the foreign country does not levy inheritance tax

In practice, this means foreign rules often prevail.

• Real estate
  Most countries (e.g. Spain, Portugal, Italy, Switzerland, Austria) tax inherited real estate.
  Some offer favourable regimes — for example, Portugal exempts inheritance between direct descendants, and in Switzerland, taxation is often minimal or nil depending on the canton.

• Movable assets
  Less commonly taxed, but still relevant.

  • Spain taxes local bank deposits and shares in Spanish companies

  • Italy may tax shares in Italian companies if the value exceeds €1 million

When Multiple Countries Tax the Same Inheritance

The most complex scenarios arise when both the heir’s country of residence and the location of assets trigger taxation.

For example, if a Hungarian parent leaves assets including a Spanish bank account, and the child resides in Germany, both countries may seek to tax the inheritance. Whether double taxation can be avoided depends on the specific rules and agreements between those countries.

Planning Ahead: A Strategic Necessity

Inheritance planning is not only a personal matter — it is also a critical financial and tax consideration.

A first step is to assess:

• The residence of heirs

• The location of assets

• The potential tax exposure across jurisdictions

The Role of Trust Structures

When taxation risks are identified, one potential solution is to use a trust structure (including the Hungarian bizalmi vagyonkezelés).

By transferring assets into a trust:

• No immediate inheritance occurs upon death

• Heirs become beneficiaries, not direct recipients

• Distribution of assets can be timed strategically

This allows for greater flexibility. For example:

• Shares in a foreign company may be sold before distribution

• Foreign bank funds may be relocated

• Assets may be distributed when the heir is in a more favourable tax position (e.g. after returning to Hungary)

Conclusion

Cross-border inheritance can transform a tax-free transfer into a complex and potentially costly situation.

With increasing international mobility and asset diversification, Hungarian families should approach inheritance with a proactive, structured strategy to ensure that wealth is transferred efficiently — and without unintended tax consequences.