Inheritance tax is one of the many forms of taxation that are levied by governments today. Also referred to as death duty in some countries and states. It is imposed on the beneficiaries or heirs of a deceased person’s estate. Taxable inheritance includes all property, real estate, stock, personal possessions, gifts and liquid assets such as cash, securities, insurance, trusts, annuities and investments, that have been passed on by a deceased person to a family member or a friend. Different states and countries have different laws governing payment of inheritance tax but certain aspects of such laws are similar all around.
Commonality is especially seen in IHT exemptions laws. Beneficiaries can be exempted from tax payment in the case of gifts, charitable donations, trusts, life insurance and estate left to spouses. Although exemptions are universally accepted, the intricate details on the procedures to be followed and the requirements to be met for tax exemption differ a lot from place to place. Exemptions are however very important because they can help you to reduce the tax burden on your beneficiaries plus they also allow you to pass on the family business to your children without causing the business to go bankrupt.
Inheritance tax is only chargeable on property values that are above specific set amounts in most states or countries. In the UK it is only levied on property valued above £325,000 while in most U.S states, the threshold for inheritance taxation stands at $5.35million in 2015. The European average is any property value above £ 1.8 million. The U.S, U.K and other European countries’ IHT rates are at 40% of the total value of the inherited estate which is relatively low compared to the world’s highest IHT rate seen in Japan, currently at 57%. These rates are usually subject to yearly review by taxation authorities or by government instituted boards of the individual states and countries.
In most countries, IHT rates depend on the relationship between the beneficiary and the deceased. Immediate family members such as spouses or children are taxed using lower rates compared to the rates charged on friends and distant relatives. Only a few countries levy a flat rate for inherited property such as India and China, where 1% of the estate value is charged on the heir irrespective of their relationship with the decedent. The estate value that is used to calculate IHT levies is usually modified to exclude personal debts and outstanding loans of the deceased.
Taxes payable for inherited trusts and gifts are usually calculated from all lifetime gifts and trusts of the deceased in most places except in a few states where it is limited to a certain period of time in the life of the deceased. Gifts or donations given or received before the set span of time are not subject to taxation. Such timeline laws are put in place mainly to prevent inheritance tax evasion whereby one gives out their estate as a gift or as a donation before they die.
What we’ve learned
Using an experienced inheritance attorney, you can easily reduce the amount of tax that your heirs will be required to pay. An attorney will help you write a will that makes proper use of the nil-rate band allowance to reduce, in advance, the tax liability you’ll leave behind. A lawyer will also be in the best position to give you relevant, accurate and up-to-date information on inheritance tax laws.
As you can tell this is a complex topic, and we have only scratched the surface. The Law Office of BJ Richardson can help shed light on all your questions and concerns. Call today for your free 30 minute consultation today.