Prepaid inheritance

An individual (a will-be heir) who wishes to distribute part or all of their assets to their heirs before their death can do so through an advance inheritance payment.

The legal effect of an advance inheritance payment is determined at the time the inheritance tax is paid. Heirs must keep this rule in mind when arranging advance payments before the end of the year. It is not sufficient for the district commissioner to endorse the report before the end of the year. Heirs must also pay the tax before the end of the year.

The process

An inheritance report must be completed for the advance inheritance payment. An electronic inheritance report can be completed if the testators, heirs, and, where applicable, guardians all have electronic identification.

If not all parties have electronic identification, a paper inheritance report can be completed. The original signed report must be submitted to the district commissioner where the testator has legal residence. Both the testators and heirs must sign the report. If the heirs are under 18 years old, their guardians must sign the report with the approval of the chief guardian (district commissioner).

The report must specify which assets are being distributed as inheritance and their value.

The following documents may need to be submitted with the inheritance report:

• A division declaration for real estate (if real estate is being inherited). It must be signed by the heirs or their representatives and two witnesses. Whether the report is submitted electronically or on paper, the original division declaration must always be submitted to the district commissioner’s office.

• A will (if a testamentary heir is being paid out and the will is not kept with the district commissioner).

• Approval from the chief guardian (district commissioner) if the heir is under 18 years old and if the heir and/or testator is deprived of financial competence.

• Documents confirming the value of the assets, such as securities portfolio statements and vehicle appraisals.

Once the district commissioner has received the inheritance report, they review it, endorse it, and impose the inheritance tax.

Heirs receive a notification of the inheritance tax assessment in their digital mailbox on Ísland.is. The letter specifies where the inheritance tax can be paid.

The due date for the inheritance tax is 10 days from the date the notification is sent to the digital mailbox on Ísland.is, and the final due date is one month later. If the inheritance tax is not paid by the final due date, interest will accrue from the due date.

Once the inheritance tax has been paid, the district commissioner can confirm the division declaration for the transfer of real estate as an advance inheritance. Subsequently, it can be registered, and the heirs will be registered owners of the real estate. The registration of the division declaration takes place with the district commissioner where the real estate is located. The declaration must be in the original form, and a registration fee must be paid.

Who can receive an advance inheritance payment?

• Legal heirs who are entitled to inheritance according to inheritance laws.

• Testamentary heirs who are entitled to inheritance according to a will.

Inheritance Tax Base for Advance Inheritance Payment

The inheritance tax is 10% of the value of the asset being transferred.

Debts or expenses cannot be deducted when calculating the inheritance tax for an advance inheritance payment.

The calculation of the inheritance tax for an advance inheritance payment is based on the time the district commissioner endorses the inheritance report.

Tax exemption thresholds do not apply to advance inheritance payments. Full inheritance tax must be paid on what is transferred.

Heirs are jointly and severally liable for the payment of the inheritance tax, with the limitation that no one will be charged more than their total inheritance.

The tax authority receives a copy of the inheritance report and reviews it. The received inheritance will be pre-registered on the heirs’ tax returns.