Benjamin Franklin said: “In this world nothing can be said to be certain, except death and taxes”. Taxmen worldwide got inspired by his words and introduced inheritance tax, or estate duty, also known as death tax, in some countries.
India may still be “hesitant” to talk about inheritance tax, but many other countries have been levying the duty for the past many decades, with the maximum tax rate going as high as 80 per cent.
The tax is usually levied on the net value of assets passed on to the heirs of a deceased person. Taxpayers inheriting small wealth are generally exempted from the tax. A spouse is exempted in most cases. The Czech Republic exempts transfer of some immovable property and bank deposits from the tax. There are countries which also tax insurance claims paid out to a heir.
Incidentally, the abolition, restoration and change in duty rate of the tax law have an impact on death numbers. According to a study, when Sweden scrapped the inheritance tax on January 1, 2005, people subject to the levy were 10 per cent more likely to die in the New Year than on December 31, 2004. The same happened when Australia scrapped the tax in 1979.
A report in The Economist in November 2010 said during a one-year inheritance tax holiday in the US, the country saw many billionaires passing away.
Heirs of all those who died during this one-year period paid much less tax than those whose parents died in the earlier or following years.
Many countries have entered into tax pacts to avoid double taxation of assets in the case of inheritance and gifts received from another country.