Tax Aspects of Large Inheritances 2026

Legal Status in 2026 and General Overview

Czech tax legislation has undergone a fundamental change in the last decade. As of 1 January 2014, inheritance and gift taxes were abolished as separate taxes. Since that date, income from inheritance has been included under the Income Tax Act and is completely exempt from tax, regardless of the value of the assets or the relationship between the heir and the decedent. Heirs therefore do not file a tax return for the acquisition of the property itself.

While acquiring an inheritance is tax-neutral, the sale of inherited property is governed by the standard rules for income taxation under Act No. 586/1992 Coll., on Income Taxes. Specific rules apply here, which differ from the regular sale of a property you bought yourself. Mistakes in the timing of the sale or in determining the acquisition price can cost heirs hundreds of thousands of crowns.

The lawyers at ARROWS law firm encounter this issue very frequently, as significant family assets are transferred during generational changes, and heirs are often uninformed about the tax consequences of their actions. If you are unsure about your procedure, ARROWS can provide a legal analysis of your situation.

Legislative Context and Practical Implications

Until the end of 2013, inheritance was subject to inheritance tax regulated by Act No. 357/1992 Coll., but this regime was abolished in 2014. Income from inheritance is exempt under Section 4a of the Income Tax Act. In practice, this means that if you inherit a property worth ten million crowns, you do not pay income tax on the inheritance itself.

The problem arises upon sale, where the legislator has set rules for the taxation of income from the sale of real estate in Sections 4 and 10 of the Income Tax Act. It is precisely the distinction between "exempt inheritance" and "taxable subsequent sale" that is the source of the most common mistakes.

How Income Tax Exemption Works for the Sale of Inherited Property

For the income from the sale of inherited property to be tax-exempt, a time test must generally 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 price.

An exception is a situation where you meet other statutory conditions for exemption – most often if you had resided in the property for at least 2 years immediately before the sale, or if you subsequently use the funds obtained to acquire your own housing needs.

The Time Test and Its Shortening for Inheritances

The length of the time test depends on when the property was acquired, with the date of acquisition for an inheritance being the date of the decedent's death. For properties acquired by the end of 2020, a 5-year period applies; for newer acquisitions from 1 January 2021, the period has been extended to 10 years.

According to Section 4(1)(b) of the Income Tax Act, the period during which the decedent owned the property is included in the heir's time test if it is an inheritance from a relative in the direct line or from a spouse.

A 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 inheritance proceedings, the sale is exempt. The father's ownership period is counted, and you thus meet even the stricter 10-year test.

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

How Income Tax is Calculated in Case of a Non-Exempt Sale

If you do not meet the conditions for exemption, the profit from the sale is subject to personal income tax. The tax rate is 15% for the basic band and 23% for the part of the tax base exceeding the specified limit according to Section 16 of the Income Tax Act.

For inherited property, the acquisition price that you deduct from the sale price is the price determined in the probate proceedings according to Section 10(5) of the Income Tax Act.

Previously, administrative prices were used, but today the price in the inheritance proceedings should correspond to the customary (market) price. It is in the heir's interest that this price is not unnecessarily low.

If you valued the apartment at CZK 4 million in the inheritance proceedings and sell it a year later for CZK 5 million, you will be taxed on the difference of one million crowns.

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

Hidden Tax Risks in the Sale of Large Inheritances

When selling inherited property, heirs most often make mistakes in administration and valuation, which leads to unnecessary financial losses.

Misunderstanding the Notification Duty for Large Inheritances

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

The notification is filed by the end of the deadline for filing the tax return for the year in which the court's inheritance decree became final and binding (note: for the purposes of this report, the decisive year is the year the inheritance proceedings were legally concluded, not the year of the decedent's death itself).

Penalties for non-notification can be drastic and are divided by law into three levels. If you report the income late, but on your own initiative without a summons, you pay 0.1% of the unreported amount. If you fulfill the obligation only after a summons from the tax office, the fine is 10%. However, if you do not respond to the tax office's summons at all, the fine increases to 15%.

For a property worth CZK 10 million, the fine for failing to comply with the notification duty can be up to CZK 1.5 million. The CZK 5 million limit is assessed for each taxpayer and each individual income separately. If you and your brother inherit a house worth CZK 8 million, no notification duty arises because the value of each of your shares did not exceed the limit.

For inheritances, we recommend consulting further steps with a notary depending on the specific situation. ARROWS cooperates with several trusted notaries, for example, with notary Mgr. Silvie Dohnalová or with Mgr. Tomáš Ostrožlík, as well as with other notary offices. Clients can choose from our list of cooperating notaries according to the location where they operate or where they need notary services. For more significant cases, a joint meeting with a notary can also be organized directly at the ARROWS premises by prior arrangement.

Errors in Property Valuation

A major risk is the attempt to "save" on notary fees by stating the lowest possible property price in the inheritance proceedings. If you undervalue the property and then soon sell it at market price, your tax base will be unnecessarily high. A correctly set price in the inheritance proceedings is the best defense against future tax on the sale.

Risks Arising from Undocumented Costs

If you carry out repairs and renovations on the inherited property before selling it, you must have proper documents (invoices) for everything. Work done "off the books" cannot be claimed as a tax-deductible expense, which increases the final tax liability.

Practical Situations and Examples

Case One (Time Inclusion): In 2026, Mr. Z. inherits a house from his father, who had owned the property for 26 years. Mr. Z. wants to sell the house immediately. Because it is an inheritance in the direct line, the son includes his father's ownership period, and the sale is thus completely exempt from tax.

Case Two (No Inclusion): In 2026, Ms. L. inherits an apartment from her aunt, which is valued at CZK 4 million in the proceedings. Six months later, she sells it for CZK 4.5 million. An inheritance from an aunt is not a direct line, so the time test starts from zero, and Ms. L. must pay tax on the profit of CZK 500,000.

Case Three (CZK 5 Million Limit): Mr. J. inherits a portfolio of shares and a property with a total value of CZK 12 million. Because the value of the exempt income exceeded CZK 5 million, he must file a Notification of Exempt Income with the tax office.

Practical Steps to Minimize Tax Risk

If you are dealing with an inheritance and considering a sale, first verify the notification duty. If the value of your share is higher than CZK 5 million, do not forget to file a notification with the tax office. Insist that the price stated in the inheritance decree corresponds to the real market value, because a higher value in the inheritance means a lower tax base for a future sale.

Furthermore, 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 liability. Before you sign a reservation agreement for the sale of the inherited property, have a lawyer verify whether you meet the time test for exemption.

The Complexity of Tax Issues and Why Professional Help is Needed

The tax aspects of inheritance and subsequent sale are interconnected, and a mistake in the first step can have irreversible financial consequences. The ARROWS law firm can coordinate these processes, ensure the correct legal setup for the sale, and protect you from penalties from the tax office.