What Is Estate Tax?

Estate tax is the tax on estates where the value is more than the exclusion limit set by the law of a country. It is only the exceeding amount that is subject to tax.

The calculation of the tax depends on the estate’s current value or Fair Market Value (FMV). The tax is usually a posthumous right.

How it is Applied Around the World

Table 1. Top Estate or Inheritance Tax Rates to Lineal Heirs in the OECD
Ranking	Country	Tax Rate
1	Japan	55%
2	South Korea	50%
3	France	45%
4	United Kingdom	40%
4	United States	40%
6	Spain	34%
7	Ireland	33%
8	Belgium	30%
8	Germany	30%
10	Chile	25%
11	Greece	20%
11	Netherlands	20%
13	Finland	19%
14	Denmark	15%
15	Iceland	10%
15	Turkey	10%
17	Poland	7%
17	Switzerland[1]	7%
19	Italy	4%
20	Luxembourg[2]	0%
20	Serbia	0%
20	Slovenia	0%
20	Australia	0%
20	Austria	0%
20	Canada	0%
20	Estonia	0%
20	Israel	0%
20	Mexico	0%
20	New Zealand	0%
20	Norway	0%
20	Portugal	0%
20	Slovak Republic	0%
20	Sweden	0%
20	Hungary[3]	0%
	OECD Simple Average	15%
Source: Family Business Coalition.

In the United States, the government imposes estate tax on any estate exceeding the exclusion limit. An estate needs to be more than $5 million in value before it becomes taxable, making estate tax a tax for the rich. Middle and lower classes often do not have to pay estate tax. Inheritance tax in the US becomes applicable only in certain states.

Inheritance tax in the UK applies only if the asset exceeds the £325,000 threshold. If the deceased leaves the assets behind for their children then the threshold increases to £500,000.

However, in countries such as the Philippines, estate tax applies to any deceased individual leaving behind an estate for inheritance. The rate is usually 6% of the net estate value.

In countries like Japan and South Korea, estate tax rates can run up to 55% and 50% of the net estate value, respectively.

How is Inheritance Tax any different?

Inheritance tax is the tax levied on assets inherited from a deceased person.

It is only the inheritance exceeding exemption that is subject to tax. The closer the inheritor’s relationship to the deceased, the exemption will be higher.

Estate Tax in Australia

Both Estate and Inheritance Tax do not exist in Australia.

The inheritor may still be liable for tax obligations such as Capital Gains Tax and income tax. CGT if the asset inherited is disposed of. While income tax applies to any dividends or rental income generated from the inherited estate.