Inheritance tax is a tax imposed on the transfer of assets or wealth from a deceased individual to their beneficiaries or heirs upon death. Also known as estate tax or death duty in some jurisdictions, inheritance tax is levied based on the value of the assets transferred, including real estate, financial holdings, personal property, and other assets owned by the deceased at the time of death. The tax rate and thresholds for inheritance tax vary by jurisdiction, with some regions exempting smaller estates or providing deductions or exemptions for certain types of assets or beneficiaries. Inheritance tax is intended to generate revenue for the government while also promoting fairness and equity in wealth distribution. However, critics argue that it may disincentivise savings and investment and impose a burden on beneficiaries receiving inheritances.
Taxes some jurisdictions impose on people or organisations who inherit property from a deceased person’s estate. The taxes are based on the value of the inherited property.
Inheritance tax is the tax imposed on the heirs of the estate upon the transfer of assets from the deceased person.
Inheritance tax is also known as the estate tax. That is because the inheritance tax applies to anything of value, including real estate, jewellery, collectable items, and alike. The inheritance tax is also pertinent to intangible assets, such as life insurance and investments. Traditionally, the inheritance tax is known to be quite high, and sometimes even unaffordable. Thus, in order to minimize inheritance tax burdens, it is recommended to implement thorough estate planning (i.e. writing a will, creating trusts, etc.). With that in mind, many families purchase dual life insurance, which helps the beneficiaries reduce inheritance tax spending. In the United States, an inheritance tax is also referred to as a death tax.
Inheritance Tax is charged on the value of a person’s estate when they have died. There are strict deadlines in force for submission of an Inheritance Tax account and payment of tax to HM Revenue & Customs.
When calculating the estate’s liability to Inheritance Tax, you should take into account certain tax allowances, within which Inheritance Tax is not payable. These include:
- Nil rate band
- Transferable nil rate band
- Residence nil rate band
- Transferable residence nil rate band
In addition, there are a number of tax exemptions and reliefs, which can reduce an estate’s liability to Inheritance Tax. You may be entitled to claim these reliefs if, for example, the estate is passing to a certain person (such as a surviving spouse or charity) or the estate is made up of certain types of assets (such as business or agricultural property).
It is important to account promptly and accurately to HM Revenue & Customs, to avoid any unnecessary penalty or interest charges. Our experienced team are on hand to advise you of the tax position of the estate, and to complete the necessary returns and calculations for you.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 29th March 2024.
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