Inheritance Tax Debates Continue
President Obama has recently revealed plans to increase inheritance taxes payable by Americans with high-value estates. His proposal increases the tax rate applied to estates of sizes greater than $5,430,000.00 from 40% to 68% of the amount over the threshold. If implemented, this increased tax rate will make American estates the highest taxed in the world, surpassing Japan, South Korea, and France, currently with the top three inheritance tax rates worldwide, at 55%, 50%, and 45%, respectively.
The proposal for inheritance tax increases in the United States is inspired in part by a study conducted earlier this month by the Tax Foundation, which suggests that our neighbours to the south are currently earning half of what they were from inheritance taxation in the early 2000s.
The decreased revenue is attributable to the exemption of estates valued at less than $5.43 million from inheritance taxes and estate planning with a view to avoiding the taxation. The exemption threshold for payment of American inheritance taxes has increased significantly since the year 2003, at which time estate assets beyond the first $1,000,000.00 were subject to inheritance taxes.
However, reduced earnings may be a scenario preferable to the American government to what has been seen in thirteen other jurisdictions since the year 2000 – the abolition of inheritance taxes altogether.
In other regions, such as the United Kingdom, where inheritance tax is also applied, the issue of the tax is divisive. It has the potential to raise funds which may be used to accomplish important social objectives, but can also frustrate estate plans of the wealthy whose beneficiaries may not be able to afford to keep what has been gifted to them.
Inheritance tax rates of greater than 50% certainly make the probate fees payable by residents of Ontario seem relatively insignificant. When so much planning revolves around avoiding the payment of low Estate Administration tax rates, it would seem that many Canadians would object to the establishment of an inheritance tax regime. Further, the recent study by the Tax Foundation suggests that there may be less benefit to government funding through the implementation of inheritance taxes than might be expected.
Thank you for reading.