Inheritance Tax

Like Estate Taxes, Inheritance Taxes arise in the event of death of an individual. Although there is a clear distinction between “estate tax” and “inheritance tax” in the USA, inheritance tax is the norm in countries such as UK, the Republic of Ireland and in many countries which are part of the Commonwealth.

Like Estate Taxes, Inheritance Taxes arise in the event of death of an individual. Although there is a clear distinction between “estate tax” and “inheritance tax” in the USA, inheritance tax is the norm in countries such as UK, the Republic of Ireland and in many countries which are part of the Commonwealth.

In case of the UK, inheritance tax is paid on the taxable value of the estate of an individual which is also calculated on assets given away during the lifetime such as property, possessions, money and investments. Inheritance Taxes are administered by the Her Majesty department of Revenue and Customs in case of UK. As per the tax year 2007-08, inheritance tax is only applicable if the value of the estate exceeds 300,000 pounds. Gifts or donations made to UK charities, UK National Trust and maintenance charges for ex-spouses are outside the ambit of inheritance taxes. The annual exemption limit in case of UK is 3000 pounds.

The inheritance tax is passed on to the executor of the will if the property or estate in question is transferred via a will. Property or assets lying intestate also have state provisions for inheritance taxes payable by the survivors or decedents of the individual.

However, certain amounts passed on during the lifetime or via the will of an individual are exempted from the ambit of inheritance tax. This includes if the property is transferred, even in excess of the value of 300,000 pounds, to the surviving spouse who is also domiciled in the UK. Most gifts made before seven years of the person’s death are exempt from inheritance tax.

Gifts in the case of wedding and those in anticipation of a civil partnership up to 5000 pounds are outside the purview of inheritance tax. The current inheritance tax rate is fixed at 40% and transfers of assets or properties to companies and trusts are also liable for inheritance taxes if it exceeds the exemption threshold. It should be noted in this context that gifts and transfers made during the preceding seven years are included in the calculation of inheritance tax.

Inheritance taxes usually carry the deadline of six months after the death of a person within which they should be cleared otherwise interests are charged on the amount of money outstanding.

Some of the US states which have inheritance taxes at the state level include South Carolina, South Dakota and New Mexico. In case of India, there are no inheritance taxes and only taxes on property exist. Taxes on capital gains also fall under the ambit of Income Tax. The tax base should be widened with the government taking the responsibility to collect all tax arrears.

Central Public Sector Units should be brought more into the tax net and Securities Transactions Taxes should be strongly implemented and tax exemptions on corporate organizations should be more rationalized. Introduction of Inheritance Taxes, increased conformation of Wealth Taxes and broadening tax base for Value Added Tax and Sales Taxes on luxury goods are some of the challenges before the Indian government.