Tax aspects of large inheritances 2026: Hidden tax risk when selling inherited property

If you inherit real estate or substantial assets, income from the inheritance is exempt from personal income tax in the Czech Republic, but the subsequent sale of the inherited property may involve significant tax obligations under Czech legislation. Without understanding these specific rules, you risk not only an additional tax assessment, but also substantial penalties. This article highlights the tax risks and shows where mistakes are hidden—issues our Czech legal team commonly addresses.

Quick summary

• The inheritance itself is tax-free in the Czech Republic, but the sale of inherited real estate is subject to Czech income tax (15% or 23% of the gain) unless the so-called time test is met.
• For inheritances from a spouse or a direct-line relative, the holding period of the deceased is also counted towards the exemption period (5 or 10 years).
• Inheritance income exceeding CZK 5 million must be reported to the Czech tax authority (Financial Office), even if it is tax-exempt; otherwise, significant penalties may apply.
• The tax base is calculated as the difference between the sale price and the value determined in the probate (estate) proceedings, so valuation errors during the inheritance process can lead to unnecessarily high taxes.

Status of the legal framework in 2026 and general overview

Czech tax legislation has undergone a fundamental change over the last decade. As of 1 January 2014, inheritance tax and gift tax were abolished as separate taxes. Since then, inheritance income has been brought under the Income Taxes Act and is fully exempt from tax, regardless of the value of the assets or the relationship between the heir and the deceased. Heirs therefore do not file a tax return for the acquisition of the assets itself.

While acquiring an inheritance is tax-neutral, the sale of inherited real estate is governed by the standard rules for taxation of income under Act No. 586/1992 Coll., on Income Taxes (Czech law). Specific rules apply here that differ from the usual sale of real estate that you purchased yourself. Mistakes in the timing of the sale or in determining the acquisition value can cost heirs hundreds of thousands of Czech crowns.

The attorneys at ARROWS, a Prague-based law firm, encounter these issues very frequently, as significant family assets are transferred as part of generational change and heirs are often not informed about the Czech tax consequences of their steps. If you are unsure about the correct approach, ARROWS can provide a legal analysis of your situation.

Legislative context and practical impacts

Until the end of 2013, inheritances were subject to inheritance tax regulated by Act No. 357/1992 Coll., but this regime has been abolished since 2014. Inheritance income is exempt under Section 4a of the Income Taxes Act. In practice, this means that if you inherit real estate worth CZK 10 million, you do not pay income tax on the inheritance itself.

The issue arises upon sale, where the legislator set rules for taxation of income from the sale of real estate in Sections 4 and 10 of the Income Taxes Act. It is precisely the distinction between a “tax-exempt inheritance” and a “taxable subsequent sale” that is the source of the most common misunderstandings.

How the income tax exemption works when selling inherited real estate

For income from the sale of inherited real estate to be exempt from tax, the time test generally must be met. If you sell the property before the statutory period has elapsed, you must pay tax on the difference between the sale price and the acquisition value.

An exception applies where you meet other statutory conditions for exemption—most commonly if you had your residence in the property for at least 2 years immediately before the sale, or if you subsequently use the proceeds to secure your own housing needs.

The time test and its adjustment for inheritances

The length of the time test depends on when the property was acquired; for inheritances, the acquisition date is the date of the deceased’s death. For properties acquired by the end of 2020, the period is 5 years; for acquisitions from 1 January 2021, the period was extended to 10 years.

Under Section 4(1)(b) of the Income Taxes Act, the period during which the deceased owned the property is counted towards the heir’s time test if the inheritance is from a direct-line relative or from a spouse.

Practical example: If you inherit an apartment from your father (direct line) who owned it for 15 years, and you sell it immediately after the probate proceedings, the sale is exempt. Your father’s ownership period is counted, so you meet even the stricter 10-year test.

However, if you inherit assets in an indirect line (e.g., from an uncle, aunt, sibling) or from an unrelated person, the deceased’s ownership period is not counted and the time test starts from zero.

How income tax is calculated if the sale is not exempt

If you do not meet the conditions for exemption, the gain from the sale is subject to Czech personal income tax. The tax rate is 15% for the basic bracket and 23% for the portion of the tax base exceeding the statutory threshold under Section 16 of the Income Taxes Act.

For inherited real estate, the acquisition value deducted from the sale price is the value determined in the probate (estate) proceedings under Section 10(5) of the Income Taxes Act.

In the past, administrative values were used; today, the value in the inheritance proceedings should correspond to the usual (market) value. It is in the heir’s interest that this value is not unnecessarily low.

If, in the inheritance proceedings, you valued the apartment at CZK 4 million and sell it a year later for CZK 5 million, you will tax the difference of CZK 1 million.

The tax base can be further reduced by documented costs associated with the sale (real estate agency commission, legal services, expert valuation fees) and by costs of technical improvements, provided you can substantiate them.

Hidden tax risks when selling large inheritances

When selling inherited assets, heirs most commonly make mistakes in administration and valuation, leading to unnecessary financial losses.

Misunderstanding the reporting obligation for large inheritances

Even though inheritance income is tax-exempt, there is an obligation to report this income to the tax administrator if its value exceeds CZK 5 million. This obligation follows from Section 38v of the Income Taxes Act.

The notification must be filed by the end of the deadline for filing the tax return for the year in which the court decision on the inheritance became final (note: for the purposes of this notification, the relevant year is the year in which the probate proceedings were finally concluded, not the year of the deceased’s death).

Penalties for failure to notify can be severe, and Czech law divides them into three levels. If you report the income late but voluntarily without being prompted, you pay 0.1% of the unreported amount. If you comply only after a request from the Financial Office, the fine is 10%. If you do not respond to the authority’s request at all, the fine increases to 15%.

For a property worth CZK 10 million, the penalty for failing to meet the reporting obligation can be up to CZK 1.5 million.

The CZK 5 million threshold is assessed separately for each taxpayer and for each individual item of income. If you and your brother inherit a house worth CZK 8 million, the reporting obligation does not arise because the value of each of your shares did not exceed the threshold.

Mistakes in valuing real estate

A major risk is trying to “save” on notary fees by stating the lowest possible property value in the Czech probate (inheritance) proceedings. If you undervalue the property and then sell it soon afterwards for the market price, your tax base will be unnecessarily high. A correctly set value in the inheritance proceedings is the best defence against future capital gains tax on the sale under Czech tax rules.

Risks arising from undocumented costs

If you carry out repairs and renovations on inherited real estate before selling it, you must have proper documentation for everything (invoices). Work done “off the books” cannot be claimed as a tax-deductible expense under Czech legislation, which increases the resulting tax liability.

Practical situations and examples

Case one (Counting the ownership period): In 2026, Mr Z. inherits a house from his father, who owned the property for 26 years. Mr Z. wants to sell the house immediately. Because this is a direct-line inheritance, the son can count the father’s ownership period, and the sale is therefore fully exempt from tax under Czech tax rules.

Case two (Without counting): In 2026, Ms L. inherits an apartment from her aunt, valued in the proceedings at CZK 4 million. Half a year later, she sells it for CZK 4.5 million. An inheritance from an aunt is not in the direct line, so the time test starts from zero and Ms L. must tax the profit of CZK 500,000.

Case three (CZK 5 million threshold): Mr J. inherits a portfolio of shares and real estate with a total value of CZK 12 million. Because the value of the tax-exempt income exceeded CZK 5 million, he must file a Notification of Tax-Exempt Income with the Czech tax authority.

Related questions on tax calculation and the time test

1) If I inherit real estate from my parents who owned it for a long time, can I sell it immediately without tax?

Yes. For direct-line inheritances (parents, children) and from a spouse, the deceased’s ownership period is counted. If your parents met the time test (i.e., the combined period of their ownership and yours exceeds 5/10 years under Czech tax rules), the sale is exempt.

2) What is the difference between the value in the inheritance proceedings and the market price on sale? Do I pay tax on the full amount?

Tax is paid only on the profit (the difference). If you sell for CZK 5 million and the value in the inheritance decision was CZK 4.5 million, you tax only the difference of CZK 500,000. If you sell for CZK 4.5 million (or less), you do not pay any tax.

3) If I share the property with my brother, is the CZK 5 million reporting threshold assessed on the entire property?

No, the threshold is assessed separately for each heir based on the value of their share. If the property is worth CZK 8 million and each inherits half (CZK 4 million), no reporting obligation arises for either of you.

Practical steps to minimise tax risk

If you are dealing with an inheritance and considering a sale, first verify whether you have a reporting obligation in the Czech Republic. If the value of your share is higher than CZK 5 million, do not forget to file the notification with the Czech tax authority.

Insist that the value stated in the inheritance decision corresponds to the real market value, because a higher value in the inheritance means a lower tax base on a future sale.

Also, carefully archive all documents and invoices for renovations, real estate agency services, and legal services related to the sale, as these items reduce your final tax under Czech legislation.

Before you sign a reservation agreement for the sale of inherited real estate, have an attorney verify whether you meet the time test for exemption.

The complexity of tax issues and why professional assistance is needed

The tax aspects of inheritance and a subsequent sale are interconnected, and a mistake in the first step can have irreversible financial consequences. ARROWS, a Prague-based law firm, can coordinate these processes, ensure the correct legal set-up of the sale under Czech law, and protect you from penalties imposed by the Czech tax authority.

FAQ – Most common legal questions on the tax aspects of large inheritances

1) Is it true that inheritance is tax-free and I do not need to worry about anything?

Income from inheritance is exempt from income tax. However, be aware of the reporting obligation for assets over CZK 5 million and the taxation of any subsequent sale if you do not meet the time test under Czech tax rules.

2) How long do I have to hold inherited real estate before I can sell it tax-free?

Generally 5 years (acquired up to 2020) or 10 years (acquired from 2021). However, for direct-line inheritances or from a spouse, the period during which the deceased owned the property is also counted.

3) What happens if I do not report a large inheritance to the Czech tax authority?

You may face a penalty of 0.1% to 15% of the value of the unreported assets. The Czech tax authority can also identify these facts retrospectively from the Czech Real Estate Cadastre.

4) Can I determine the value for the inheritance proceedings myself?

The usual (market) value in the inheritance proceedings is determined by the notary, often based on a statement from a real estate agency or an expert valuation report. For the purposes of a future sale, it is crucial that this value is not artificially low.

5) What is the safest approach if I want to sell inherited real estate?

Arrange a legal assessment before you start the sale process. The attorneys at ARROWS advokátní kancelář will analyse your situation, calculate any potential tax exposure under Czech law, and recommend the most advantageous approach. Contact us at office@arws.cz.

Notice: The information contained in this article is of a general informational nature only and is intended for basic orientation on the topic. Although we strive for maximum accuracy, legal regulations and their interpretation evolve over time. To verify the current wording of the regulations and their application to your specific situation in the Czech Republic, it is therefore necessary to contact ARROWS advokátní kancelář directly (office@arws.cz). We accept no liability for any damages or complications arising from the independent use of the information from this article without our prior individual legal consultation and professional assessment. Each case requires a tailored solution, so please do not hesitate to contact us.

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