Inheritance tax was abolished with effect from 1 January 2014. This change affects gifts given after 31 December 2013 and inheritance where the death occurred after 31 December 2013.
Tax obligation following the sale of property
In practice, the abolition of inheritance tax had no bearing on the tax liability for gains or the deduction entitlement for losses made on the sale of a property that has been inherited or received as a gift.
The conditions for tax liability are the same before and after 1 January 2014; Gains from the sale of property will be taxable unless the conditions for tax exemption under Section 9-3 of the Taxation Act are met.
However, the rules concerning continuity/discontinuity may affect the input value of the property for the gift/inheritance recipient concerned and, as a result, the amount of profit/loss made on the taxable sale of the property.
Any profits made on the sale of property are taxable unless the conditions for tax exemption under Section 9-3 of the Tax Act are met. Insofar as the recipient of the property through inheritance/gift (after 1 January 2014) does not satisfy the conditions for tax-free sales under Section 9-3 on his or her own, consideration must be given to the tax position of the testator/donor at the time of death/donation. If the testator/donor could have sold the property tax-free at the time of death/donation, the heir/gift recipient may adjust the input value of the property upwards to the estimated market value at the time of acquisition. However, if the testator/donor could not have sold the property tax-free at the time of death/donation, the heir/gift recipient will take over the input value (and other tax positions) of the testator/donor upon transfer of the property. For more information about this, see the topics ‘discontinuity’ and ‘continuity’ below.
Requirements are imposed concerning both the period of ownership and the period of residence for tax exemption. The requirements concerning period of ownership for residential properties are met when the sale takes place or is agreed
- more than one year after the property was acquired, and
- when the owners themselves are responsible for the entry: more than one year after the property was brought into use or had been completed in accordance with a certificate of completion.
The requirements concerning period of occupancy are met when the owner has used the property as his own home for at least one of the two years prior to the sale. In some cases, non-use can be considered equivalent to period of occupancy.
For a full exemption, the owner of the property must have used at least half of the building – calculated according to the rental value – as his own home and the rest of it must have been let for residential purposes. If less than half of the property has been used as the owner's own home, there is a tax exemption for the part of the gain which relates to the seller's residential part in accordance with a discretionary allocation (based on rental value).
Requirements are imposed concerning both the period of ownership and the period of residence for tax exemption. The requirements concerning period of ownership are met when the sale takes place or is agreed:
- more than five years after the holiday home was acquired, and
- when owners themselves are responsible for the entry: more than five years after the property was brought into use or had been completed in accordance with a certificate of completion.
The requirements concerning period of occupancy are met when the owner has used the property as his own holiday home in at least five of the past eight years before the realisation.
Plots of land
Sales of plots of land will always be taxable and any loss will be deductible.
Calculating the gain/loss
However, the abolition of inheritance tax will be of importance in the calculation of the gain or loss in the event of the subsequent sale of the property. The gain or loss must be calculated based on the difference between the input value and the output value.
The input value is set to the market value of the property at the time of acquisition for either the testator/donor or the heir/recipient. Whether or not the heir/recipient's or the testator/donor's input value should be used depends on whether the testator/donor himself could have sold the property tax-free. See below concerning continuity/discontinuity.
The output value is the sale price that the recipient of the inheritance or gift receives, after the deduction of sales expenses.
The principle of continuity was introduced as a general rule for the transfer of inheritance and gifts with effect from 2014 onwards. See under "Discontinuity" for more information on important exceptions for homes, holiday homes, farms and forestry where the testator/donor himself could have sold the property with a tax-free gain.
Tax continuity applies in cases where the testator/donor would have been liable for tax had he sold the property himself. The continuity means that the heir or recipient of a gift takes over the input value from the testator or donor upon sale. In other words, no new valuation of the property will be carried out in connection with the transfer of inheritance or gifts. It is the input value of the testator or donor which is used as a basis in the future determination of gains. Continuity also means that the heir or gift recipient enters into the tax positions of the testator or donor.
You have been given a cabin by your parents after 1 January 2014, which they have not used in five of the past eight years and therefore could not have sold tax-free. You will take over your parents' input value for the property, i.e. the input value will be equal to the price that your parents paid for the property.
If you sell the property in the future, this input value will be used to calculate any gain.
If you do not already have information on the input value, you must obtain this information before the deadline for submitting the tax return for the year in which you receive the property. The input value of the property which was received either as inheritance or as a gift in 2016 must be entered under item 4.3.2 / item 4.3.3 in the tax return for 2016 and must be documented upon request by the Tax Administration. Some examples of acceptable documentation are:
- a historical purchase agreement
- information from the land registry
- valuation by a valuer/estate agent
If the property is subsequently sold, this input value will be used to calculate the gain unless you are exempt from the rules for tax exemption; see under "Tax obligation following the sale of property".
The introduction of an exception from the principle of continuity (discontinuity) has been approved for residential properties, holiday homes, farms and forestry which could have been sold tax-free by the testator or donor at the time the gift was given or the time of death. Heirs and recipients of gifts are assigned the market price of the property ("presumed sales value") at the time of acquisition as their input value.
You have been given a house by your parents which they have owned and lived in for more than one of the past two years. Your input value will be set to the market price at the time of transfer because your parents could have sold it tax-free.
If you subsequently sell the property, this input value will be used as a basis if you sell at a profit or loss and are not exempt from tax.
The input value of the property must be entered under item 4.3.2 / item 4.3.3 in the tax return for the year in which you receive the property and must be documented upon request. Some examples of acceptable documentation are:
- estimated value
- valuation by a valuer/estate agent
- prospectus/valuation of similar properties
If the property is subsequently sold, this input value will be used to calculate the gain unless you are exempt from tax as a result of your own period of ownership and use; see under "Tax obligation following the sale of property".
Read more about the tax rules concerning inheritance tax (in Norwegian only).