How does UK Inheritance Tax compare to tax charged elsewhere?

As Benjamin Franklin said, “in this world, nothing is certain except death and taxes”.

As Inheritance Tax (IHT) rules are different for every country, you may find it useful to understand how different tax systems might affect the legacy you leave for your family and loved ones.

In the UK, IHT is levied on the estate of someone who has passed away and leaves assets that exceed specific thresholds. In 2024/25 the portion of estates above the exempt threshold may be liable for IHT at a standard rate of 40%.

Although only 4% of estates end up paying an IHT bill, research from YouGov in September 2023 revealed that 61% of Brits said they felt that taxing inherited wealth is unfair.

The primary argument against IHT is that it creates a double-tax scenario: “People work all their lives to save and leave something for their children having already paid tax on it, it’s a double hit."

The UK isn’t the only country to charge some form of IHT. In fact, according to euronews, 19 out of 27 EU countries levy some form of tax on inheritances, gifts, or estates.

Read on to find out how other countries tax inherited wealth.

In the UK the burden of Inheritance Tax is placed on estates but many countries tax the recipient

The UK is one of only a few countries that place the tax burden on estates. Denmark and the US take a similar approach.

Meanwhile, in many other countries, the recipient is taxed. In these cases, an IHT bill considers the gains each recipient has made and their personal circumstances and applies tax accordingly.

Investigating potential ways to reform IHT, the Institute for Fiscal Studies looked at whether tax should be levied on estates bequeathed or on inheritances received. The 2023 “Reforming Inheritance Tax” report advocated for “levying a tax on the receiver”.

In effect, this would mean that the tax owed would vary according to beneficiary, and account for other sources of wealth and income. This, the report stated, “would allow for a transfer of £500,000 to a millionaire to be taxed differently from a transfer of £500,000 from the same estate to someone who is poor”.

This logic follows how the French system operates.

The French system reviews people on an individual basis

In France, IHT is known as the “droits de succession”. It reviews people on an individual basis, and prioritises the interest of children.

French IHT is paid on an individual beneficiary basis, depending on the amount they receive. Plus, personal allowances and exemptions vary depending on the relationship between the beneficiary and the deceased.

For parents passing wealth to their children, the tax-free allowance is set at €100,000. Anything above that threshold is taxed at the following rates:

Source: Notaires

Meanwhile, inheritance between siblings allows a tax-free allowance of €15,932 for each beneficiary with earnings above the threshold taxed at:

• 35% if less than €24,430
• 45% if more than €24,430.

The allowances and rates can differ further for nieces and nephews or unrelated beneficiaries.

We recommend you seek expert advice to help you understand how these tax laws may affect you and your family.

In the US, depending on where you live, you may be liable for both Estate Tax and Inheritance Tax

Estate Tax is levied by the US Federal government (Fed).

As well as Federal Estate Tax, if you’re a US resident in one of the following US States, you may also be liable for state-level Estate Tax :

Estate Tax is imposed on the total value of a decedent’s estate at the time of their passing. The estate is responsible for notifying the tax authorities. As with IHT in the UK, the estate itself pays Estate Taxes and the executor must file an Estate Tax return and settle the tax from the estate’s funds.

However, this is only necessary if the estate value exceeds $13,610,000. If the total estate is less, you may not need to submit an Estate Tax return.

Six states also impose IHT. If you live in Iowa, Kentucky, Maryland, New Jersey, Pennsylvania, or Nebraska and receive an inheritance, you could find that you’re liable to pay IHT on the amount you receive.

As you can tell, where you live could have a big impact on your tax situation. The right advice is crucial to ensure you don’t fall foul of the tax rules where you live. All our advisers have in-depth knowledge of both the UK and US tax systems and are here to help.

Unlike the US, Canada doesn’t impose an Estate Tax

If you’re a beneficiary of a Canadian estate, you won’t have to pay Estate Tax on the proceeds you receive.

However, though there are exceptions for assets passed on to a surviving spouse, the Canada Revenue Agency (CRA) may treat the transfer of assets after death as a sale. In which case, you may have to pay Capital Gains Tax on the increased value of your worldwide assets.

Again, we recommend that you seek advice to find out what tax may apply if you receive an inheritance.

Several countries have no form of Inheritance Tax

While many countries levy a tax when passing on assets, there are a few that don’t have any form of IHT. These include: Austria, Cyprus, Estonia, Latvia, Malta, Romania, Slovakia and Sweden.

Among the EFTA countries, Norway doesn’t impose wealth transfer taxes either.

Likewise, if you’re resident in Singapore or Luxembourg you’re unlikely to have to pay any type of tax on inherited wealth.

Get in touch

If you’re concerned about your estate plan, or how an inheritance may affect your tax situation, and would like to discuss steps you could take to reduce a potential bill, please get in touch.

Email enquiries@alexanderpeter.com or give us a call on +44 1689 493455.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate Inheritance Tax planning.