Partial renunciation of life-insurance benefit is tax-effective, KHO holds

A savings life-insurance benefit with a general 'lapset' beneficiary designation can be accepted in part and renounced in part with full tax effect.Finlex The Supreme Administrative Court held 4-1 in KHO:2026:88 that such a partial renunciation is effective for inheritance- and gift-tax purposesFinlex, quashing the Turku Administrative Court and restoring the Tax Administration's advance rulingFinlex.

E died on 2 February 2025, leaving direct heirs A and B. E held a savings life-insurance policy worth 185,104.74 euros with the designation 'lapset'. A intended to renounce his share entirely and B to accept. A's children C and D each intended to accept 19,999 euros and renounce the excess, which would pass by statutory substitution to their own childrenFinlex; C has two children and D has three. The renunciations were to be made immediately after the advance ruling gained legal force, and none of A, C or D had touched or claimed the benefit.

The Tax Administration ruled on 16 June 2025 that the partial renunciations were effective: C and D would face no inheritance tax on the calculated values attributable to themFinlex, and their heirs as substitutes under section 50 of the Insurance Contracts Act (Vakuutussopimuslaki) would face no gift tax on the renounced partsFinlex. The Tax Recipients' Legal Services Unit appealed and the Turku Administrative Court reversed, treating the renunciation as ineffective and attaching inheritance tax to C and D on their full calculated shares plus gift tax to their heirs. A appealed, and the KHO granted leave, allowed the appeal and restored the advance ruling.

The distinction is between statutory inheritance and a contractual insurance benefit.Finlex Settled case law holds that a statutory inheritance cannot be partially renounced with tax effectFinlex, whereas a testamentary benefit canFinlex. An insurance benefit with a valid designation does not belong to the estate at all under section 47(3) of the Insurance Contracts Act.Finlex The fact that section 50(3) divides a 'lapset' designation among direct heirs within the meaning of the Inheritance Code (perintökaari) does not turn the contractual benefit into an inheritance for tax purposesFinlex.

A partial renunciation fails only where the beneficiary directs the excess to a chosen person or otherwise disposes of it, so that they count as having received the whole benefit first.Finlex Where the excess passes directly by law, there is no such disposition.Finlex Here the shares C and D declined passed to their children directly under section 50Finlex, and the KHO applied the actual-recipient principle from KHO 2007:81Finlex: the person who in fact receives the benefit is the beneficiary under section 7 a(1) of the Inheritance and Gift Tax Act (Perintö- ja lahjaverolaki)Finlex.

The KHO also resolved the conditional form. A conditional renunciation is not effective as suchFinlex, but the court read the application as meaning the declarations would be given only after the ruling became final, when the stated condition has no further significanceFinlex. For advisers the conditions are therefore narrow: the designation must be validFinlex, the beneficiary must not have acted on the benefitFinlex, must not direct the excessFinlex, and the excess must pass by statutory substitutionFinlex. One justice dissented. Legal basis: Perintö- ja lahjaverolaki 7 a § (1 momentti); Vakuutussopimuslaki 47 § (3 momentti) and 50 § (1 and 3 momentit); see KHO 2007:81.