According to the National Taxation Bureau of Taipei, with the tax due paid off of the Estate Tax, an heir may register for partition of inheritance i.e. distribution of estate, upon submission of the Tax Payment Certificate of Estate Tax. When registering the partition, Gift Tax will not be levied regardless of the situation of estate distribution.
An official pointed that, in the event of an inheritance dispute, the court may refer to the regulations on entitled portion in the Civil Code Article 1144 to ensure the heirs’ respective entitlement. Article 1223 in the Civil Code also stipulates compulsory portions which ranges from 1/3 to 1/2 of entitled portion, guaranteeing the basic inheritance proportion of an heir.
Per the Civil Code, heirs to estate other than the spouse come in the following order: Lineal descendants by blood; parents; brothers and sisters; and grandparents. If the heirs are the spouse and lineal descendants by blood, their respective entitled portion should be equally distributed, and their compulsory portion should be 1/2 of their entitled portion.
If the heirs are spouse, parents or brothers and sisters, the spouse should get 1/2 of the total inheritance as entitled portion and the rest to be equally distributed among the other descendants. For compulsory portion, parents should get 1/2 of entitled portion and brothers and sisters should get 1/3 of entitled portion.
In a case where a spouse and two siblings are the heirs, the spouse’s entitled portion is 1/2 of the total inheritance and compulsory portion is 1/4. Each sibling should get 1/4 as entitled portion and 1/12 as compulsory portion.
If the heirs are a spouse and grandparents, the spouse should get 2/3 of the total inheritance as entitled portion and 1/3 as compulsory portion. The grandparents should get an equal share of the rest of the inheritance as entitled portion, and 1/3 as compulsory portion.
Heirs may partition the inheritance by agreement after paying off the tax due of the Estate Tax as long as each heir obtains the inheritance which has a higher proportion than their compulsory portion.
For example, when Mr. A deceased and left TWD49.16 million assets to his spouse and two adult children. With TWD19.16 million of exemption and deduction (including TWD12 million of tax exemption, TWD4.93 million of deduction for spouse, TWD1 million of lineal descendants by blood deduction for the children, and TWD1.23 million of deduction for funeral fee), the remaining TWD30 million, of which 10% Estate Tax should be levied - amounts to TWD3 million.
After paying off TWD3 million estate tax, TWD46.16 million of inheritance remains. For the spouse and the children, the entitled portion is 1/3 each and compulsory portion is 1/6 each. If, by agreement, the spouse gets TWD30 million and the children get TWD8.08 million each, it also complies with the stipulated regulation for compulsory portion and can enjoy zero Gift Tax.
After paying off the Estate Tax, Gift Tax will not be incurred regardless of the distribution of inheritance. However, specific attention should be paid to the Civil Code on compulsory portion as to avoid potential conflicts.
As Gift Tax is not levied on partition of inheritance, taxpayers are advised to take into account the gift tax-free advantage for estate partitioning when considering the future generational wealth plan, as to prevent paying additional future Gift Tax or Estate Tax.
