The United States encourages the creation of wealth by having lower estate and inheritance taxes compared to other developed and emerging countries, according to a recent analysis by UHY International.
The study released Monday by UHY International, a global network of professional services firms that provide audit, tax and consulting services, looked at inheritance taxes paid by individuals in 23 countries.
The study found that the United Kingdom and Ireland impose the highest taxes on inheritances of all major economies, with Ireland imposing a 26 percent tax and the U.K. imposing a 25.8 percent tax on estates of $544,862 or more. The tax threshold is expected to remain the same in the United Kingdom for at least another four years, UHY says.
The United States exempts the first $5.3 million of an estate before imposing a tax. The exemption on the federal level is increased each year for inflation.
The level at which inheritance tax thresholds are set is a crucial issue for middle class families, says UHY, adding that if exemptions or thresholds are not adjusted with inflation it can mean that taxes that were originally designed to apply only to the wealthy will start to affect a larger portion of the population.
With the current high threshold for the U.S. federal estate taxes, the majority of estates will escape such taxation, says Joseph Falanga, partner and member of the Private Client Services Group at UHY LLP, a member of UHY International.
Only 14 of the 50 states have an inheritance tax.
“While a majority of the states do not impose an estate tax, many retirees consider the existence of such taxes when selecting a retirement location,” Falanga says. “With the anti-tax movement continuing to gain ground in the U.S., we may well see more states increasing their exemption or repealing their estate taxes."
Several major developed and emerging economies, including Australia, New Zealand, Israel, India and Russia, have repealed inheritance taxes in a bid to encourage more wealth creation and transmission, he adds.
Generally, countries do not access an inheritance tax on estates passing from a deceased spouse to the surviving one.
After Ireland and the United Kingdom, Japan, France and Spain follow with the highest taxes. The Netherlands, Germany and Nigeria also have taxes of 10 percent or more.
In addition to the countries that repealed their estate taxes, China, Croatia and UAE are among the 23 looked at by UHY that have no inheritance tax.
