**Inheritance tax** (noun) — A tax levied on the value of property or assets received by a beneficiary from a deceased person's estate. Unlike estate tax (which is paid by the estate before distribution), inheritance tax is typically paid by the individual beneficiary who receives the inheritance. The rate, thresholds, and exemptions vary significantly by jurisdiction, and many places have no inheritance tax at all.
Inheritance tax is a tax you might have to pay when you receive money or property from someone who has died.
It's important to understand that not all places have inheritance tax, and where it does exist, it usually only applies to larger inheritances or to certain types of beneficiaries.
In the UK, for example, there's Inheritance Tax (IHT) that applies to estates worth more than £325,000, though various exemptions and reliefs can reduce or eliminate the tax burden. Spouses and civil partners are generally exempt. The tax is paid by the estate before assets are distributed, despite being called "inheritance" tax.
Australia abolished its inheritance taxes decades ago. There's no inheritance tax, no estate tax, and no death duties at the federal level. However, capital gains tax might apply when inherited assets are later sold, which can feel similar to an inheritance tax even though it's technically different.
In the United States, there's no federal inheritance tax, though some states impose their own inheritance taxes on beneficiaries. The federal estate tax applies to very large estates, but that's paid by the estate itself, not by individual beneficiaries.
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Whether inheritance tax matters to your estate planning depends entirely on where you live and how much your estate is worth.
If you're in Australia, you don't need to worry about inheritance tax at all. Your beneficiaries won't pay tax simply for receiving their inheritance. However, they might face capital gains tax if they sell inherited assets like property or shares, so it's worth understanding the tax basis rules that apply to inherited property.
If you're in the UK and your estate is likely to exceed the IHT threshold, estate planning can help reduce the tax burden. Gifts made more than seven years before death are generally exempt. Leaving assets to a spouse or charity is tax-free. And various reliefs exist for business property, agricultural property, and family homes passed to direct descendants.
In jurisdictions that do have inheritance tax, the amount typically depends on the relationship between you and the beneficiary. Close family members often pay lower rates or have higher exemptions than distant relatives or friends.
Understanding whether inheritance tax applies in your situation—and if so, what steps you can take to minimize it—is an important part of estate planning. But don't assume you need to worry about it without first checking the rules in your jurisdiction.
**Related terms:** [Estate tax](/dictionary/estate-tax), [Beneficiary](/dictionary/beneficiary), Exemption, Tax
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