Inheritance tax
An inheritance tax or estate tax is a levy paid by a person who inherits money or property or a tax on the estate (total value of the money and property) of a person who has died.[1] In international tax law, there is a distinction between an estate tax and an inheritance tax: an estate tax is assessed on the assets of the deceased, while an inheritance tax is assessed on the legacies received by the beneficiaries of the estate. However, this distinction is not always respected in the language of tax laws. For example, the "inheritance tax" in the United Kingdom is a tax on the assets of the deceased, and is therefore, strictly speaking, an estate tax.
In some jurisdictions the term used is death duty. For historical reasons that term is used colloquially (though not legally) in the United Kingdom and some Commonwealth nations.
Varieties of inheritance and estate taxes
Some jurisdictions formerly had estate or inheritance taxes, but have abolished them:
- Australia abolished the federal estate tax in 1979.[5]
- Austria abolished the Erbschaftssteuer in 2008. This tax had some of the features of the gift tax, which was abolished at the same time.[6]
- Canada: abolished inheritance tax in 1972.
- Hong Kong: abolished estate duty in 2006 for all deaths occurring on or after 11 February 2006. (See Estate Duty Ordinance Cap.111)
- India: had an estate tax from 1953 to 1985.[7]
- Israel: abolished inheritance tax in 1981.
- Louisiana: abolished inheritance tax in 2008, for deaths occurring on or after July 1, 2004.[8]
- New Hampshire: abolished state inheritance tax in 2003; abolished surcharge on Federal estate tax in 2005.[9]
- New Zealand abolished estate duty in 1992.
- Russia abolished inheritance tax in 2006.
- Singapore: abolished estate tax in 2008, for deaths occurring on or after 15 Feb 2008.[10][11]
- Sweden: abolished inheritance tax in 2005.[12]
- Utah: abolished inheritance tax in 2005.[13]
Some states of the United States impose inheritance or estate taxes (see Inheritance tax at the state level):
- Indiana
- Iowa: Inheritance is exempt if passed to a surviving spouse, parents, or grandparents, or to children, grandchildren,or other "lineal" descendants. Other recipients are subject to inheritance tax, with rates varying depending on the relationship of the recipient to the deceased.[14]
- Kentucky: The inheritance tax is a tax on a beneficiary's right to receive property from a decedent's estate. It is imposed as a percentage of the amount transferred to the beneficiary. Transfers to "Class A" relatives (spouses, parents, children, grandchildren, and siblings) are exempt. Transfers to "Class B" relatives (nieces, nephews, daughters-in-law, sons-in-law, aunts, uncles, and great-grandchildren) are taxable. Transfers to "Class C" recipients (all other persons) are taxable at a higher rate.[15] Kentucky imposes an estate tax in addition to its inheritance tax.[15]
- Maryland
- Nebraska
- New Jersey
- Oklahoma
- Pennsylvania: Inheritance tax is a flat tax on the value of the decedent's taxable estate as of the date of death, less allowable funeral and administrative expenses and debts of the decedent. Pennsylvania does not allow the six month after date of death alternate valuation method that is available at the federal level. Transfers to spouses exempt. Transfers to grandparents, parents, or lineal descendants are taxed at 4.5%. Transfers to siblings are taxed at 12%. Transfers to any other persons are taxed at 15%. Some assets are exempted, including life insurance proceeds. The inheritance tax is imposed on both residents and nonresidents who owned real estate and tangible personal property in Pennsylvania at the time of their death. The Pennsylvania Inheritance Tax Return (Form Rev-1500) must be filed within nine (9) months of the date of death.[16]
- Tennessee:[17]
Other taxation applied to inheritance
In some jurisdictions, when assets are transferred by inheritance, any unrealized increase in the value of those assets is subject to capital gains tax, payable immediately. This applies in Canada, which has no inheritance tax. (see Taxation in Canada)
Where a jurisdiction has both capital gains tax and inheritance tax, it is usual to exempt inheritances from capital gains tax.
In some jurisdictions death gives rise to the local equivalent of gift tax (see Austria, for example). This was the model in the United Kingdom during the period before the introduction of Inheritance Tax in 1986, where estates were charged to a form of gift tax called Capital Transfer Tax. Where a jurisdiction has both gift tax and inheritance tax, it is usual to exempt inheritances from gift tax. Also, it is common for inheritance taxes to share some features of gift taxes, by taxing some transfers which happen during the lifetime of the giver rather than on death. The United Kingdom, for example, subjects "lifetime chargeable transfers" (usually gifts to trusts) to inheritance tax.
See also
References