Death and Taxes

Death  Taxes Website

In the shadow of a tough looming federal budget and declarations by the federal treasurer that “nothing is free”, the tax reform debate has intensified but when it comes to one tax, Australians don’t have to worry despite it’s popularity as a revenue raiser in many countries.

According to a new study by UHY, the international accountancy network, Australia is one of the few major economies not to hamper wealth creation by imposing inheritance and estate taxes. (see table on page 2)

The study looked at 23 countries and measured the amount of inheritance tax paid on real estate and cash sums for individuals living in those countries, revealing that 15 out of the 23 countries studied have some form of an inheritance tax.

UHY Haines Norton’s Tax Specialist spokesperson, Bill Charlton said the temptation to impose inheritance or estate taxes in Australia can be a double edged sword.

“While Inheritance and estate taxes may provide a new stream of revenue, there’s a danger it will become an extra barrier to wealth creation by hindering both investment and entrepreneurship,” Mr Charlton said.

“New Zealand acknowledged this recently by scrapping their inheritance and estate tax in order to create a simpler tax system with less barriers for investment.

“Without an inheritance tax individuals are more incentivised to earn more and pass it on to the next generation and inheritances are themselves often a crucial source of funding for new businesses.

“Moreover, in an Australian economy in the midst of a housing affordability crisis, an inheritance and estate tax could pose serious financial consequences for many people.” Mr Charlton said.

Around the world, the average inheritance or estate tax is 7.67% on a property of US$3m, while an average 1.9% in inheritance or estate taxes is levied on properties worth US$350,000.

The study also highlighted the UK and Ireland take the highest proportion of inheritance or estate taxes of any major world economies, with Ireland typically taking 26%, and the UK 25.8% from the estate of an individual passing on an estate worth US$3m* to their heirs.

European countries in the research generally levy the highest inheritance taxes of all, with EU countries in the study taking 14% tax on the inheritance of a property of US$3million, nearly twice as much as the global average of 7.67%. However, on a lower value property worth US$350,000, the difference was narrower, with European countries taking on average 2.5% in inheritance or estate tax, compared to a global average of 1.9%.

Download the full press release here.