Estate Taxes – Income Tax, Tax Return and Deductions

The deceased's final tax return

When a person dies, the taxation for their year of death is handled through the normal taxation process. The deceased's final tax return covers income from the beginning of the year until the date of death.

Pre-completed tax return

The Tax Administration sends a pre-completed tax return in the deceased's name to the estate's address. The return shows:

• Wages and pensions up to the date of death
• Capital income (dividends, interest, rental income)
• Prepaid taxes
• Information reported by the employer

Checking and supplementing

It is the responsibility of the estate administrator or shareholders to:

• Check the accuracy of the pre-completed information
• Add any missing income (for example, rental income, capital gains)
• Report deductions (medical expenses, travel costs, income-earning expenses)
• Correct any errors and return the declaration by the deadline

Division of income in the year of death

The income for the year of death is divided into two parts for taxation purposes:

1. The deceased's income (1 Jan – date of death): taxed in the deceased's taxation
2. The estate's income (after date of death – 31 Dec): taxed in the estate's taxation

This division is significant, as the tax rate and deductions may differ.

Estate income tax

After the year of death, the estate is an independent taxpayer. It receives its own tax identifier and pays tax on the income it receives.

Taxable income

The estate is taxed on income it receives:

• Rental income from properties and real estate owned by the estate
• Dividend income from shares and funds
• Interest income from deposits and loans
• Capital gains from the sale of assets
• Forestry income from forests owned by the estate

Tax rates

The estate's earned income is taxed progressively, as for an individual. Capital income is taxed at the capital income tax rate:

• 30% on capital income up to EUR 30,000
• 34% on the amount exceeding this

Special features of an undivided estate

An undivided estate can be a tax-efficient structure:

• The estate is a separate taxpayer, so income does not accrue to the shareholders' income
• The progression of earned income is calculated separately
• The estate has its own deductions and income-earning expenses
• On the other hand, maintaining the estate incurs administrative costs

Deadlines and schedules

Certain deadlines must be observed in estate taxation.

The deceased's final tax return

• The pre-completed tax return arrives in the spring of the year following the year of death
• The return date is marked on the declaration (usually April–May)
• An extension can be requested from the Tax Administration for a justified reason

The estate's annual tax return

• The estate receives a pre-completed tax return annually
• The return must be checked and submitted according to normal taxation schedules
• If the estate has business activities, the tax return is filed electronically

Inheritance tax return

The inheritance tax return is a separate declaration that the Tax Administration receives through the estate inventory deed:

• The estate inventory deed is submitted to the Tax Administration within one month of the estate inventory
• The Tax Administration makes inheritance tax decisions based on the estate inventory deed
• Heirs receive their own inheritance tax decisions

Deductions and debts

There are several deduction possibilities in estate taxation.

Deductions for the deceased's final tax year

• Medical expenses: medicine and treatment costs up to the date of death
• Travel costs: commuting costs up to the date of death
• Income-earning expenses: professional literature, tools, training
• Mortgage interest: deductible portion up to the date of death
• Household deduction: if the deceased used the service in the year of death

Estate deductions

The estate can deduct:

• Rental income costs: maintenance charges, repair costs, insurance
• Forestry expenses: forest management, timber harvesting, forest road maintenance
• Income-earning expenses: costs arising from the administration of assets
• Interest: interest on the estate's debts, with certain restrictions

What cannot be deducted

• Funeral costs are not deductible in income taxation
• Estate inventory costs are not deductible in income taxation
• Estate settlement costs are generally not deductible in income taxation

Treatment of debts

The deceased's debts reduce the value of the inheritance for inheritance tax purposes, but are not deductible in income taxation:

• Mortgages, consumer loans and other debts are recorded in the estate inventory deed
• Debts reduce the value of the assets on which inheritance tax is based
• If debts exceed assets, no inheritance tax is imposed

Estate capital gains

When the estate sells assets, capital income tax is payable on the capital gain.

Determination of the acquisition cost

The acquisition cost of inherited property is the value used in inheritance taxation (fair market value at the time of death). This is a significant difference:

• If the deceased purchased a property for EUR 50,000 and the value at the time of death is EUR 200,000, the acquisition cost is EUR 200,000
• This is called the inheritance taxation acquisition cost
• If the estate sells the property for EUR 210,000, the capital gain is only EUR 10,000

Deemed acquisition cost

Alternatively, the deemed acquisition cost can be used:

• 20% of the sale price if the ownership period is less than 10 years
• 40% of the sale price if the ownership period is at least 10 years
• The estate's ownership period includes the deceased's ownership period

Primary residence capital gains tax relief

Primary residence capital gains tax relief generally does not apply to the estate:

• The relief requires that the seller has used the property as their own permanent residence
• The estate does not live in the property, so the relief does not apply
• Exception: if a shareholder has used the property as their permanent residence for at least 2 years and the estate is divided to the shareholder before the sale

Practical steps

Immediately after death

1. Notify the bank and insurance companies of the death
2. Clarify the deceased's tax matters through MyTax or the tax office
3. Collect tax-related receipts and documents
4. Appoint an estate administrator to handle tax matters

In connection with the estate inventory

1. Compile all income information for the estate inventory deed
2. Clarify the deceased's debts and receivables
3. Submit the estate inventory deed to the Tax Administration within one month
4. Prepare for inheritance tax decisions

Checking the tax return

1. Wait for the pre-completed tax return in spring
2. Check income, deductions and prepaid taxes
3. Supplement missing information and correct errors
4. Return the declaration by the deadline
5. Keep receipts for at least 6 years

Annual tax return

If the estate remains undivided, a tax return must be filed every year:

• Report rental income, dividends and other income
• Make deductions correctly
• Pay any residual taxes on time
• Consider dividing the estate if there is no obstacle to doing so

Dealing with the Tax Administration

MyTax service

The estate's tax matters can be handled through the Tax Administration's MyTax service:

• The estate administrator or an authorised shareholder can act on behalf of the estate
• A Suomi.fi authorisation is needed for electronic services
• The tax return can be checked and submitted electronically
• Tax decisions are visible in MyTax

Visiting the tax office

Matters can be handled in person at a tax office:

• Bring a power of attorney or estate inventory deed as proof of the right to act on behalf of the estate
• Book an appointment in advance
• Tax advice is free of charge

Requesting a correction

If the tax decision is incorrect:

• A request for correction must be made within 3 years of the end of the tax year
• The correction is requested from the tax adjustment board
• A correction to inheritance taxation can be requested through the same procedure

Using a professional

Estate taxation can be complex. Using a professional is recommended especially when:

• The estate has significant assets or many types of income
• The estate has business activities or forest property
• There are disagreements among the shareholders
• The estate is selling real estate or securities

Read more about estate inventory taxation and estate inventory documents.

Frequently asked questions

Does a tax return need to be filed on behalf of the deceased?

Yes. The Tax Administration sends a pre-completed tax return, which must be checked and supplemented as necessary.

How is an estate taxed?

The estate is an independent taxpayer, taxed on its income for as long as it remains undivided.

What deductions can an estate make?

Income-earning expenses, such as maintenance costs for rental income, repair costs and insurance. Funeral costs are not deductible.

Are estate income tax and inheritance tax the same thing?

No. Income tax concerns the estate's income, inheritance tax concerns inherited property. They are separate processes.

How long is an estate liable to pay tax?

For as long as the estate remains undivided. After division, income is taxed in each shareholder's own taxation.