Inheritance tax is a tax on the estate, including the property, money and possessions, of someone who has died. In the UK, the standard inheritance tax rate is 40 percent, which is charged if your estate is worth more than £325,000. But how did Australia scrap inheritance tax altogether 40 years ago?
Housing Secretary Robert Jenrick has claimed the inheritance tax charge is “particularly unpopular” and “unfair” as it means people are essentially taxed twice.
Mr Jenrick’s comments fanned the flames of speculation that the Government is preparing to scrap the levy altogether to enable parents to pass on more of their property and savings to their children.
His intervention comes after the Chancellor Sajid Javid, hinted he was considering scrapping inheritance tax at an event at the Conservative Party conference last week in Manchester.
But this reform is not a new idea.
In fact, Australia led the way 40 years ago in scrapping inheritance tax.
After Queensland dispensed with its tax in 1977, there was concern in other states about the emigration of residents and capital and the potential impact of the tax on electoral outcomes.
Inheritance tax was scrapped completely in 1979 to enable assets to be passed down from generation to generation tax free and by 1984 all estate duties had been removed, both state and federal.
This occurred despite various tax review committees recommending refinements to improve the equity, efficiency and simplicity of the tax.
Instead of inheritance tax, the Australian Taxation Office (ATO) now advises that capital gains tax may be paid in the event that an asset received from an estate is later sold.
In this case, the ATO said one would potentially be required to pay capital gains tax on the proceeds of the sale.
However, if the estate’s executor sells an asset to someone else before distributing the proceeds to you, then this sale may attract capital gains tax, unless an exemption applies.
Currently, in Britain main residences are exempt from capital gains tax.
The current situation in Britain is similar and many believe the UK could benefit from implementing a similar system.
Over the past 10 years 80 percent of the growth in the nation’s inheritance tax bill has come from residential property, reflecting booming house prices.
These “accidentally rich” people have essentially been caught out by rising property prices and are likely to fall into the death tax net.
Inheritance tax would only be paid by the wealthiest and instead, anyone else below the required threshold would instead face capital gains tax once they had profited from the subsequent sale of inherited estates or possessions.