Inheritance Tax

Intermediate

Inheritance tax is a tax on money or property received from someone who has died. Depending on the country, it is charged either on the heir who receives the assets or on the deceased person's estate as a whole.

Countries tax wealth passed on at death in different ways. Some charge tax on the heir, often with rates and allowances that depend on how closely related the heir was to the deceased. Children may pay little or nothing, while distant relatives or unrelated people pay more. Others, such as the United States, use an estate tax, charged on the whole estate before it is shared out.

The United Kingdom calls its tax inheritance tax, but it works more like an estate tax: it is charged on the estate above a tax-free threshold, with exemptions such as transfers to a spouse or civil partner and gifts to charity.

For example, under a system with a tax-free threshold of 300,000 and a rate of 40%, an estate worth 500,000 would pay 40% of 200,000, or 80,000, if no other reliefs applied.

Some countries have no tax on death at all. Rules on gifts made during a person's lifetime are often linked to inheritance tax, to stop people avoiding it by giving assets away shortly before death.

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