An Inheritance Tax is a tax paid by an individual who receives a deceased person’s estate, including money, properties, possessions etc.
This kind of tax is primarily collected from the successors or beneficiaries of a deceased person. The tax is levied when the estate is transferred to the recipients. In most situations, each successor must pay their inheritance tax based on the percentage of the estate acquired.
This tax is applied depending on the valuation of the estate. In some cases, if the estate’s worth goes below a set threshold, the tax will not be charged.
The connection between the dead and the recipient may influence the need to pay the tax. Spouses, for example, are typically exempt from paying these taxes.
Furthermore, businesses and organizations that get the estate as a charitable contribution from the deceased individual are exempt from paying the tax.
In most cases, lineal heirs and ancestors, such as parents, children, siblings, and grandparents, along with distant relatives and non-relatives, must pay the inheritance tax. However, distant relatives and non-relatives are usually taxed at a considerably higher rate than close relatives.
Use of this Term in a Sentence
- People frequently confuse inheritance tax with estate/property tax, even though these two are fundamentally different.
- An estate tax is charged on the estate before its assets are transferred, whereas an inheritance tax is charged on heirs after they acquire assets.
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