Inheritance Tax Around The World: How Countries Like The US, UK, And Japan Tax Wealth Transfer

Also Read: Hindu Undivided Family (HUF): Benefits and drawbacks in saving income tax 

In India, inheritance taxes usually fall into different categories—will of succession (legal heirs), inheritance by nomination (legal nominee), and joint ownership of the inherited assets. In countries like Belgium, Brazil, and Ireland, where inheritance taxes are still active, the tax rate varies depending on the beneficiary’s relationship with the deceased and the total value of inherited assets.

For example, places like New Jersey, Nebraska, Maryland, and many others provide exemptions for immediate family members up to a certain threshold, which determines the amount of tax you have to pay on the inherited assets.

How is inheritance tax calculated?

Inheritance taxes are calculated differently in each country, as per their jurisdiction rules and rates, but here’s a general approach:

• Calculating the gross value of inherited assets: First, add up the market value of all received assets, such as real estate, cash, investments, gold, vehicles, and others.
• Exclude debts and liabilities: This amount is reduced by any outstanding debts or liabilities tied to the estate, such as mortgages or loans.
• Apply exemptions or exclusions: Some assets may qualify for exemptions or reduced inheritance tax rates, depending on the heir’s relationship to the deceased or local tax laws.
• Know the taxable value: After deducting the debts and exemptions, the remaining value is the taxable amount of the estate.
• Apply the inheritance tax rate: Finally, apply the relevant tax rate based on local laws to the taxable amount to determine the final payable tax value.

Are there any income tax implications?

Even though India has not yet reintroduced inheritance taxes, tax liabilities can still arise.

Income from inherited assets

If you inherit an asset that generates income, the income must be reported in your taxfilings. For example, if you inherit a commercial property from your family, earning ₹1,00,000 per month in rent, you must report this amount as part of your taxable income.

Capital gains tax

Selling an inherited asset attracts capital gains tax, which depends on the holding period:

• Short-term capital gains (STCG): If the asset is sold within two years of inheritance, it is taxed as regular income, based on the income slab.
• Long-term capital gains (LTCG): If the asset is held for more than two years, a 20 percent tax with indexation benefits applies.

For example, if you inherited a land purchased by your mother in 2000 for ₹10,00,000 and sold it in 2024 for ₹40,00,000, you will pay LTCG tax.

Capital gains tax also applies when you redeem or sell inherited mutual funds or other valuable assets, including real estate and gold.

Comparison between estate tax vs. inheritance tax

Estate tax and inheritance tax are often confused, but they have key differences. Estate tax is taken from the total value of a deceased person’s estate before the assets are distributed to heirs. It’s based on the overall worth of the estate, regardless of who inherits the assets. In contrast, inheritance tax is paid by the individual who receives the assets, and the amount owed can vary depending on their relationship to the deceased. This distinction means that the estate tax impacts the overall estate value, while the inheritance tax focuses on the heir’s share alone.

Will India bring back the inheritance taxes?

The potential reintroduction of the inheritance tax in India has recently sparked quite a debate. The topic was brought up during the pre-budget discussions for 2025-26, with some trade unions suggesting a 1 percent inheritance tax on the ultra-rich to generate revenue for education, healthcare, and social security.

Many supporters believe such a tax could reduce the wealth gap, as India’s richest 1 percent hold over 40 percent of the nation’s total wealth, far exceeding the global average. Some also argue that taxing inherited assets leads to double taxation, as the deceased likely paid income and wealth taxes on those assets during their lifetime.

Whether the government decides to reintroduce the inheritance tax in India or not, the ongoing talks suggest that a clear decision may be made soon.