Taking a Look at Inheritance Tax

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Inheritance tax is an excise tax levied on the transfer of assets of an individual to another. Assets are transferred by gift or at death to heirs. A tax return must be made within six months or one year of death.

The rate of this tax is highly progressive and depends on two factors: the amount of the acquisition; the degree of relations between the testator and the beneficiary.

The highest rate applies to an inheritance or donation of a non blood relative or spouse. Arguments around the application of such a tax have been met with resolute positions by the authorities.

The government considers that it has legitimate taxing power which befalls a person without effort, sometimes called the principle of opportunity. The objection that the deceased was in power before the taxation, is countered with the argument that the transferee is irrelevant.

In some jurisdictions, the applicable tariff structure has a so-called first and second progression. The first progression can be rationalized from the privileged idea which consists of obtaining an increasing rate with decreasing affinity, where the traditional notion of family estate exists.

The second progression is based on ability to pay the principle and implies that the rate increases as the acquisition is increasing in size. A third progression would mean that the rate is also dependent on the income or assets of the acquirer.

In some European countries the surviving spouse or cohabitant is exempt from inheritance tax, each child receives an allowance of 150,000 euros before tax. Transfers to brothers and sisters are taxed at 35% up to € 23,000 and 45%, after deduction of 15,000 euros. As regards the estate between relatives, the rate is 55% within the fourth degree inclusive.

And for succession between parents beyond the fourth degree, or between non-relatives the rate stands at 60%. The main residence has a 20% reduction. The heirs of which this is not the principal residence (children) are likely to pay a capital gain thereafter. The furniture is estimated at 5% except inventory.

It is also common for death to be viewed as bringing about the equivalent of gift tax in countries such as Austria. And was previously used in the United Kingdom in the 1980’s, a period which witnessed the launching of the inheritance tax. In the United States, it is common for death to be exempt from gift tax.

In Kentucky, the inheritance tax constitutes a tax on a beneficiary’s right to obtain assets from a deceased’s estate. And it is levied as a percentage of the sum shifted to the beneficiary.
 

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