Inheritance tax

How does inheritance tax differ from estate tax?

Inheritance tax is paid by each beneficiary on the value of what they personally receive — calculated separately per beneficiary with rate variation by relationship to the decedent (spouse / child / sibling / unrelated). Estate tax is paid by the decedent's estate before distribution — calculated once on the gross estate. The substantive impact: inheritance-tax frameworks reward distribution to multiple closely-related beneficiaries (each gets their own exemption); estate-tax frameworks treat the estate as a single taxable unit. France, Germany, Spain, Belgium, Italy, Netherlands, and Japan operate inheritance-tax frameworks; US and UK use estate tax. The full cross-jurisdictional matrix is covered in the companion estate-tax topic hub.

How are recipient classes structured?

Most inheritance-tax frameworks classify beneficiaries by relationship to the decedent and apply graduated rates. Germany Erbschaftsteuer: Class I (spouse, children, grandchildren, parents) 7-30 percent; Class II (siblings, in-laws, divorced spouse) 15-43 percent; Class III (everyone else, including registered partner in some scenarios) 30-50 percent. Class-I exemptions: spouse EUR 500,000, child EUR 400,000, grandchild EUR 200,000, parent EUR 100,000. France droits de succession: direct descendants 5-45 percent (EUR 100,000 abatement per parent-to-child pair); siblings 35-45 percent (EUR 15,932 abatement); nephews/nieces 55 percent (EUR 7,967 abatement); unrelated 60 percent (EUR 1,594 abatement). Spouse exemption unlimited from 2007. Spain SD: rates vary materially by autonomous community — Madrid + Andalucía effectively eliminate via 99 percent reductions; other communities 7.65-34 percent with multipliers. Italy: 4 percent (spouse/children, EUR 1m exemption per beneficiary); 6 percent (siblings, EUR 100k); 8 percent (unrelated, no exemption) — among lowest in OECD.

How is cross-border inheritance taxed?

Cross-border inheritance — where decedent and beneficiary reside in different jurisdictions, or assets sit in a third jurisdiction — typically triggers tax in multiple jurisdictions absent treaty relief. The basic allocation: the decedent's residence/domicile jurisdiction taxes worldwide assets; the asset-situs jurisdiction taxes situs-located assets (commonly real estate); the beneficiary's residence jurisdiction may also tax inheritance received. Without treaty relief, the same inheritance can face multi-layered taxation. Estate-and-gift-tax treaties (the US has approximately 16 in force) provide tie-breaker rules on deemed-domicile, foreign-tax-credit relief, and reduced situs-rule application. Where no treaty applies, unilateral domestic credits (US §2014, France's credit method, Germany's anrechnung) provide partial relief. The compliance burden on cross-border heirs is materially higher than on single-jurisdiction heirs.

What planning structures mitigate inheritance tax?

Common planning structures across inheritance-tax jurisdictions: Lifetime gifting to use annual + lifetime exemptions before death — Germany permits gift-receipts every 10 years to reset exemptions; France permits gift-receipts every 15 years similarly. Family-business succession reliefs — Germany's Verschonungsabschlag exempts up to 100 percent of qualifying family-business assets; UK BPR exempts 100 percent of qualifying business assets held >2 years; France's Pacte Dutreil reduces base by 75 percent for qualifying family-business shares held >6 years. Insurance-policy structures — French assurance-vie permits beneficiary-designated EUR 152,500 per beneficiary (under-70 contributions) outside inheritance-tax base; Italian polizza assicurativa similar. Trust-and-foundation structures — Liechtenstein Stiftungen, Anglo-Common-law trusts in non-trust jurisdictions create characterisation-and-recognition complexity. Most planning is jurisdiction-specific; cross-border families typically engage credentialed tax-and-legal practitioners in each relevant jurisdiction.

Which jurisdictions have no inheritance tax?

The no-inheritance-tax cluster: Australia (abolished 1979); Canada (deemed-disposition CGT applies on death assets at fair market value — structurally different from a transfer tax); New Zealand (abolished 1992); Sweden (abolished 2005); Norway (abolished 2014); Russia (abolished 2006); India (abolished 1985); Israel (no inheritance tax); Singapore (Estate Duty Act repealed for deaths from 15 February 2008); Hong Kong (Estate Duty Act repealed for deaths from 11 February 2006); United Arab Emirates (no individual income tax means no estate or inheritance tax); Mexico (no federal inheritance tax; some states have minor transfer taxes); Austria (abolished 31 July 2008). The pattern: the post-2000 trend has been toward repeal in former-USSR and Anglo-Commonwealth jurisdictions, with EU continental economies retaining the regime as a high-yield wealth-transfer tax.