Inheritance Tax

Inheritance tax is a tax on property and money passed on when someone dies. Depending on the country, it is charged either on the whole estate before it is shared out by executors or a trustee, often called an estate tax or estate duty, or on each heir according to what they receive. Most systems pair it with a gift tax so that wealth cannot simply be handed over shortly before death to escape the charge.

Inheritance taxes are a small part of total revenue in most countries but attract great political attention because they touch family homes, farms and businesses. They sit alongside capital gains tax and wealth tax as the main ways of taxing accumulated wealth rather than income. Around 24 OECD countries levy some form of inheritance, estate or gift tax, according to a 2021 OECD study, and on average these raise about half of one percent of total tax revenue.

When a person dies, everything they owned is gathered together, debts are paid off, and what is left is passed on. An inheritance tax is the government's share taken at that moment, usually only when the amount left is large. Most ordinary estates fall under a tax-free threshold and pay nothing.

The rules usually let married partners leave everything to each other without tax, and many countries let people give gifts during their lifetime that become tax-free if the giver lives long enough afterwards. Gifts to charity are typically free of the tax as well.

The two main designs differ in who is treated as the taxpayer:

• Estate tax. The tax is charged on the total value of the estate, and executors pay it before distributing what remains. The United States federal estate tax and the UK's inheritance tax, despite its name, follow this model.
• Inheritance tax in the strict sense. Each beneficiary is taxed on what they receive, often with progressive rates and allowances that depend on how closely they were related to the deceased. Germany, France and Japan use this approach, and several US states, such as Pennsylvania and New Jersey, levy their own inheritance taxes.
• Taxing gains at death. Some countries have no inheritance tax but treat death as a sale of the assets. Canada, which abolished its estate taxes in 1972, taxes accrued capital gains on a "deemed disposition" at death.

As of 2026, UK inheritance tax is charged at 40% on the value of an estate above a nil-rate band of £325,000. An extra residence nil-rate band of up to £175,000 applies when a home passes to children or grandchildren, and any unused bands transfer to a surviving spouse or civil partner, so a married couple can leave up to £1 million tax-free. Both bands are frozen until April 2031. Gifts made more than seven years before death are normally outside the tax. From April 2026 the 100% reliefs for business and agricultural property were limited, and from April 2027 most unused pension funds are due to be counted in the estate, changes that drew protests from farmers and business owners.

The US federal estate tax has a top rate of 40%, but under legislation passed in July 2025 the exemption was set at $15 million per person from 2026, indexed for inflation, so only a very small number of estates pay it. Heirs also receive a "stepped-up" cost basis, meaning gains that built up during the deceased's life escape capital gains tax.

Many countries have abolished death taxes. Australia ended them in 1979, India abolished estate duty in 1985, Pakistan ended its estate duty in 1979 and Sweden abolished inheritance tax in 2005. Japan, by contrast, has one of the highest top rates, at 55%. In countries where Islamic law governs succession, fixed shares for heirs under the rules of inheritance shape how estates pass, separately from any tax; charitable endowments such as a waqf are a traditional way of dedicating wealth beyond a lifetime.

Wealthy families often use trusts, foundations and a family office to plan for succession, and some move their tax residency to jurisdictions without death taxes. Cross-border estates can face double taxation, although few countries have estate tax treaties.

Supporters, including many economists across the spectrum, argue that inheritance taxes cause relatively little harm to work incentives, because heirs did not earn the wealth, and that they reduce the passing of advantage down generations. Concentrated generational wealth is a recurring theme in research on economic inequality, and some liberal thinkers since John Stuart Mill have favoured taxing large inheritances to promote equal opportunity.

Opponents say the tax double-taxes income and savings already taxed once, falls hardest on family farms and businesses that are asset-rich but cash-poor, and discourages saving. They note that well-advised families can avoid much of it through trusts, lifetime gifts and reliefs, so that it is paid mainly by the moderately wealthy. Others argue the tax raises too little to justify its unpopularity. Reform ideas range from abolition to replacing estate taxes with a lifetime receipts tax on heirs, or taxing unrealized capital gains at death.

• GOV.UK: Inheritance Tax
• IRS: Estate tax
• OECD: Inheritance Taxation in OECD Countries