US has a fairly simple inheritance tax system. On the other hand India no longer imposes inheritance tax, which was removed in 1985 during the Rajiv Gandhi administration. Despite having good intentions, V.P. Singh, the finance minister at the time, believed it had not succeeded in bringing about social equilibrium or in closing the wealth gap. Throughout its existence, inheritance tax or estate duty was imposed from 1953 to 1985.
What is Inheritance Tax?
Inheritance tax is still an active tax in largest economies e.g United States. Certain states impose an inheritance tax on individuals who inherit assets. An inheritance tax is different from an estate tax in that it is paid by the beneficiary of a bequest instead of the deceased person's estate.
Inheritance taxes are rare. As of 2023, inheritance taxes are only imposed in six states, and they are based on a number of factors, including the state in which the deceased resided or owned property, the inheritance's value, and the beneficiary's relationship to the decedent.
Six U.S. states—Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania—collect inheritance taxes. The value of your inheritance, your relationship to the deceased, and the local laws in your area will all determine whether and how much of it is taxed. The state or states where the deceased resided or owned property may impose inheritance tax.
How inheritance tax is calculated?
If inheritance taxes are payable, they are only applied to the portion of the inheritance that is more than the exemption threshold. Over those amounts, tax is typically calculated using a sliding scale. Usually starting in the single digits, rates increase to a range of 15% to 18%. Your relationship to the deceased may influence both the exemption you receive and the rate you pay—more so than the value of the assets you are inheriting.
Usually, the larger the exemption and the lesser the rate you'll pay, the closer your familial relationship was to the deceased. All six states exempt surviving spouses from inheritance taxes. In New Jersey, domestic partners are also excluded. "Inheritance Tax Beneficiary Classes," New Jersey Department of Treasury. Only Nebraska and Pennsylvania impose inheritance taxes on descendants.
