Inheritance tax

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An inheritance tax is a tax paid by a person who inherits money or property of a person who has died, whereas an estate tax is a levy on the estate (money and property) of a person who has died. [1]

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International tax law distinguishes 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 estate's beneficiaries. However, this distinction is not always observed; for example, the UK's "inheritance tax" is a tax on the assets of the deceased, and strictly speaking is therefore an estate tax.

For historical reasons, the term death duty is still used colloquially (though not legally) in the UK and some Commonwealth countries.

Varieties of inheritance and estate taxes

Some jurisdictions formerly had estate or inheritance taxes, but have abolished them:

Some jurisdictions have never levied any form of tax in the event of death:

United Kingdom

Inheritance tax was introduced with effect from 18 March 1986.

History (succession duty)

Succession duty, in the English fiscal system, is "a tax placed on the gratuitous acquisition of property which passes on the death of any person, by means of a transfer from one person (called the predecessor) to another person (called the successor)". In order properly to understand the present state of the English law it is necessary to describe shortly the state of affairs prior to the Finance Act 1894 — an act which effected a considerable change in the duties payable and in the mode of assessment of those duties.

The Succession Duty Act 1853 was the principal act that first imposed a succession duty in England. By that act a duty varying from 1% to 10% according to the degree of consanguinity between the predecessor and successor was imposed upon every succession which was defined as "every past or future disposition of property by reason whereof any person has or shall become beneficially entitled to any property, or the income thereof, upon the death of any person dying after the time appointed for the commencement of this act, either immediately or after any interval, either certainly or contingently, and either originally or by way of substitutive limitation and every devolution by law of any beneficial interest in property, or the income thereof, upon the death of any person dying after the time appointed for the commencement of this act to any other person in possession or expectancy". The property which is liable to pay the duty is in realty or leasehold estate in the UK and personalty—not subject to legacy duty—which the beneficiary claims by virtue of English, Scottish, or Irish law. Personalty in England bequeathed by a person domiciled abroad is not subject to succession duty. Successions of a husband or a wife, successions where the principal value is under £100, and individual successions under £20, are exempt from duty. Leasehold property and personalty directed to be converted into real estate are liable to succession, not to legacy duty.

Special provision is made for the collection of duty in the cases of joint tenants and where the successor is also the predecessor. The duty is a first charge on property, but if the property be parted with before the duty is paid the liability of the successor is transferred to the alienee. It is, therefore, usual in requisitions on title before conveyance, to demand for the protection of the purchaser the production of receipts for succession duty, as such receipts are an effectual protection notwithstanding any suppression or misstatement in the account on the footing of which the duty was assessed or any insufficiency of such assessment. The duty is by this act directed to be assessed as follows: on personal property, if the successor takes a limited estate, the duty is assessed on the principal value of the annuity or yearly income estimated according to the period during which he is entitled to receive the annuity or yearly income, and the duty is payable in four yearly installments free from interest. If the successor takes absolutely he pays in a lump-sum duty on the principal value. On real property the duty is payable in eight half-yearly installments without interest on the capital value of an annuity equal to the annual value of the property. Various minor changes were made. The Customs and Inland Revenue Act 1881 exempted personal estates under 300. The Customs and Inland Revenue Act 1888 charged an additional 1% on successions already paying 1% and an additional 11% on successions paying more than 1%. By the Customs and Inland Revenue Act 1889, an additional duty of 1% called an "estate duty" was payable on successions over 10,000.

The Finance Acts 1894 and 1909 effected large changes in the duties payable on death. As regards the succession duties they enacted that payment of the estate duties thereby created should include payment of the additional duties mentioned above. Estates under £1,000 (£2,000 in the case of widow or child of deceased) are exempted from payment of any succession duties. The succession duty payable under the Succession Duty Act 1853 was in all cases to be calculated according to the principal value of the property, i.e., its selling value, and though still payable by installments interest at 3% is chargeable. The additional succession duties are still payable in cases where the estate duty is not charged, but such cases are of small importance and in practice are not as a rule charged.

United States

The United States imposed a succession duty by the War Revenue Act of 1898 on all legacies or distributive shares of personal property exceeding $10,000 (worth $308,902 in 2020 dollars [28] ). This was a tax on the privilege of succession, and devises and land distributions of land were unaffected. The duty ran from 75 cents on the $100 to $5 on the $100, if the legacy or share in question did not exceed $25,000. On those over that value, the rate was multiplied 11 times on estates up to $100,000, twofold on those from $100,000 to $200,000, 21 times on those from $500,000 to a $1 million, and threefold for those exceeding a million.[ citation needed ] This statute was upheld as constitutional by the U.S. Supreme Court.[ citation needed ]

Many of the states also impose succession duties, or transfer taxes; generally, however, on collateral and remote successions; sometimes progressive, according to the amount of the succession. The state duties generally touch real estate successions as well as those to personal property. If a citizen of state A owns registered bonds of a corporation chartered by state B, which he has put for safe keeping in a deposit vault in state C, his estate may thus have to pay four succession taxes, one to state A, to which he belongs and which, by legal fiction, is the seat of all his personal property; one to state B, for permitting the transfer of the bonds to the legatees on the books of the corporation; one to state C, for allowing them to be removed from the deposit vault for that purpose; and one to the United States.

The different U.S. states all have other regulations regarding inheritance tax:

Some U.S. states impose inheritance or estate taxes (see inheritance tax at the state level):

Other taxation applied to inheritance

In some jurisdictions, when assets are transferred by inheritance, any unrealized increase in asset value is subject to capital gains tax, payable immediately. This is the case in Canada, which has no inheritance tax.

When a jurisdiction has both capital gains tax and inheritance tax, inheritances are generally exempt from capital gains tax.

In some jurisdictions, like Austria, death gives rise to the local equivalent of gift tax . This was the UK model before the Inheritance Tax in 1986 was introduced, when 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 UK, for example, subjects "lifetime chargeable transfers" (usually gifts to trusts) to inheritance tax.

Historical

Ancient Rome

No inheritance tax was recorded for the Roman Republic, despite abundant evidence for testamentary law. The vicesima hereditatium ("twentieth of inheritance") was levied by Rome's first emperor, Augustus, in the last decade of his reign. [37] The 5% tax applied only to inheritances received through a will, and close relatives were exempt from paying it, including the deceased's grandparents, parents, children, grandchildren, and siblings. [38] The question of whether a spouse was exempt was complicated—from the late Republic on, husbands and wives kept their own property scrupulously separate, since a Roman woman remained part of her birth family and not under the legal control of her husband. [39] Roman social values on marital devotion probably exempted a spouse. [40] Estates below a certain value were also exempt from the tax, according to one source, [41] but other evidence indicates that this was only the case in the early years of Trajan's reign. [42]

Tax revenues went into a fund to pay military retirement benefits ( aerarium militare ), along with those from a new sales tax ( centesima rerum venalium ), a 1% tax on goods sold at auction. [43] The inheritance tax is extensively documented in sources pertaining to Roman law, inscriptions, and papyri. [44] It was one of three major indirect taxes levied on Roman citizens in the provinces of the Empire. [45]

See also

Related Research Articles

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Will and testament Legal declaration by which a person names one or more persons to manage his or her estate and provides for the distribution of his property at death

A will or testament is a legal document that expresses a person's (testator) wishes as to how their property (estate) is to be distributed after their death and as to which person (executor) is to manage the property until its final distribution. For the distribution (devolution) of property not determined by a will, see inheritance and intestacy.

Intestacy condition of the estate of a person who dies without having made a valid will or other binding declaration

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Taxation in the United Kingdom income tax

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Estate planning

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A transfer tax is a tax on the passing of title to property from one person to another.

Taxation in the Republic of Ireland Irish tax code

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Inheritance Tax in the United Kingdom

In the United Kingdom, Inheritance Tax is a transfer tax. It was introduced with effect from 18 March 1986, replacing Capital Transfer Tax.

The taxation of trusts in the United Kingdom is governed by a different set of principles to those tax laws which apply to individuals or companies.

The U.S. generation-skipping transfer tax imposes a tax on both outright gifts and transfers in trust to or for the benefit of unrelated persons who are more than 37.5 years younger than the donor or to related persons more than one generation younger than the donor, such as grandchildren. These people are known as "skip persons." In most cases where a trust is involved, the GST tax will be imposed only if the transfer avoids incurring a gift or estate tax at each generation level.

Taxation in the British Virgin Islands is relatively simple by comparative standards; photocopies of all of the tax laws of the British Virgin Islands would together amount to about 200 pages of paper. Taxation in the British Virgin Islands is mostly notable for what is not subject to taxation. The British Virgin Islands has:

The Nil-Rate Band is a term defined and used within the tax legislation of the United Kingdom and which establishes the threshold below which some or all of the value of a gift, a death estate or assets held within a trust is subject to a zero rate of Inheritance Tax in the United Kingdom on an occasion of charge to Inheritance Tax. An occasion of charge to Inheritance Tax may not only be the death of an individual, but may also the date of a gift or of another act causing a transfer of value to occur from one person to another person, trust or entity.

The estate tax in the United States is a tax on the transfer of the estate of a deceased person. The tax applies to property that is transferred via a will or according to state laws of intestacy. Other transfers that are subject to the tax can include those made through an intestate estate or trust, or the payment of certain life insurance benefits or financial account sums to beneficiaries. The estate tax is one part of the Unified Gift and Estate Tax system in the United States. The other part of the system, the gift tax, applies to transfers of property during a person's life.

Taxes in Germany are levied by the federal government, the states (Länder) as well as the municipalities (Städte/Gemeinden). Many direct and indirect taxes exist in Germany; income tax and VAT are the most significant.

Taxation in South Africa Explanation of tax in South Africa with applicable tables

Taxation may involve payments to a minimum of two different levels of government: central government through SARS or to local government. Prior to 2001 the South African tax system was "source-based", wherein income is taxed in the country where it originates. Since January 2001, the tax system was changed to "residence-based" wherein taxpayers residing in South Africa are taxed on their income irrespective of its source. Non residents are only subject to domestic taxes.

The South African law of succession prescribes the rules which determine the devolution of a person's estate after his death, and all matters incidental thereto. It identifies the beneficiaries who are entitled to succeed to the deceased's estate, and the extent of the benefits they are to receive, and determines the different rights and duties that persons may have in a deceased's estate. It forms part of private law.

The history of inheritance taxes in the United Kingdom has undergone significant change and mutation since their original introduction in 1694.

Inheritance and gift taxes in Canada have a complex history dating back to Canadian Confederation. They are beginning to see a return to prominence in the provincial sphere.

References

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  2. "RESOLUÇÃO N° 9, DE 1992". Archived from the original on 2014-10-19. Retrieved 2014-09-29.
  3. "Boafgift - beregningseksempler" (in Danish). Danish Ministry of Taxation. 15 November 2017. Retrieved 30 April 2018.
  4. "Vero.fi/Inheritance". Finnish Tax Administration.
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  11. "Hoeveel vrijstelling heb ik voor de erfbelasting?". belastingdienst.nl (in Dutch). Retrieved 2019-10-11.
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  14. Inheritance tax in Spain (2018-06-14). "| Changes in the Spanish inheritance tax in Spain". Inheritance tax in Spain. Retrieved 2020-03-26.
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  17. "Canada Inheritance Tax Laws & Information". 2016-08-30.
  18. The Estate Duty Act came into effect 15 October 1953. The E.D.(Amendment) Act of 1985 discontinued the estate duty on deaths occurring on or after 16 March 1985.
  19. "Inheritance tax on HNIs likely to be reintroduced", The Economic Times , 5 October 2017
  20. "Your Taxes: Will the Tax Authority receive your inheritance". The Jerusalem Post - JPost.com.
  21. "Skatteetaten - Arveavgift".
  22. "Estate Duty - IRAS".
  23. Inheritance tax does not reduce inequality, The Guardian, August 31, 2006
  24. http://www.diva-portal.org/smash/get/diva2:457378/FULLTEXT01.pdf
  25. Cole, Alan (17 March 2015). "Estate and Inheritance Taxes around the World". taxfoundation.org.
  26. Eaves, Matt Woolsey and Elisabeth. "Tax Havens Of The World" Check |url= value (help). Forbes.
  27. http://www.gov.ky/portal/page?_pageid=1142,1481212&_dad=portal&_schema=PORTAL
  28. https://www.in2013dollars.com/us/inflation/1898?amount=10000
  29. "Individuals".
  30. Julie Garber. "Estate Taxes by State - Does New Hampshire Have an Estate Tax?". About.com Money.
  31. "USTC - USTC". Archived from the original on 2011-05-14. Retrieved 2014-01-05.
  32. "DOR: Inheritance Tax Information". 2014-12-22.
  33. "Iowa Department of Revenue: Iowa Taxes". 2010-07-08.
  34. 1 2 "A Guide to Kentucky Inheritance and Estate Taxes: General Information" (PDF). Kentucky Revenue Cabinet. March 2003. Archived from the original (PDF) on 2009-06-11. Retrieved 2009-05-29.
  35. http://www.state.pa.us/portal/server.pt/community/inheritance_tax/11414
  36. Tenn. Code Ann. 67-8-303
  37. Jane Gardner, "Nearest and Dearest: Liability to Inheritance Tax in Roman Families," in Childhood, Class and Kin in the Roman World pp. 205, 213.
  38. Gardner, "Liability to Inheritance Tax," pp. 205, 211.
  39. Gardner, "Liability to Inheritance Tax," p. 214; see further Bruce W. Frier and Thomas A.J. McGinn, A Casebook on Roman Family Law (Oxford University Press, 2004), pp. 19–20, and Beryl Rawson, "The Roman Family in Italy" (Oxford University Press, 1999), p. 15–18.
  40. Gardner, "Liability to Inheritance Tax," p. 214.
  41. Cassius Dio 55.25.5.
  42. Gardner, "Liability to Inheritance Tax," p. 205.
  43. Gardner, "Liability to Inheritance Tax," p. 205; Graham Burton, "Government and the Provinces," in The Roman World (Routledge, 1987, 2002), p. 428; Peter Michael Swan, The Augustan Succession: An Historical Commentary on Cassius Dio's Roman History Books 55–56 (9 B.C–A.D. 14) (Oxford University Press, 2004), p. 178.
  44. Gardner, "Liability to Inheritance Tax," p. 205. A 2nd-century AD epitaph for a Roman of equestrian rank, for instance, lists procurator of the 5 percent inheritance tax on his career résumé ( CIL 10.482).
  45. Burton, "Government and the Provinces," p. 428.

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