Is tax charged on death or on gifts by individuals and, if so, which factors cause the tax to apply, when must a tax return be submitted, and at what rate, by whom and when must the tax be paid?
Private Client (3rd edition)
Inheritances, gifts and donations are subject to capital gains tax in Colombia. The transfer of any real estate involved will also trigger registry tax of approximately 1.8%.
Once an estate has covered all obligations, the inheritance is dis¬tributed among all heirs. Such distribution is subject to capital gains tax at a 10%. However, in some cases part of the inheritance may be considered as exempted income.
Inheritances, gifts and donations are subject to capital gains tax regardless of the location of the assets if the individual is a Colombian tax resident. If the individual is not considered as a tax resident, only inheritances gifts and donations of Colombian source are subject to taxation in Colombia.
Transfers upon death and gifts are subject to inheritance and gift tax at the following rates and with the following exempt amounts:
(a) 4 per cent, if the transfer is made to spouses and direct descendants or ancestors; here, the transfer is subject to tax on the value exceeding Euro 1 million (this exempt amount applies to each beneficiary);
(b) 6 per cent, if the transfer is made to brothers and sisters; here, the transfer is subject to tax on the value exceeding Euro 100,000 (this exempt amount applies to each beneficiary);
(c) 6 per cent, if the transfer is made to relatives up to the fourth degree, to persons related by direct affinity as well as to persons related by collateral affinity up to the third degree; and
(d) 8 per cent, in all other cases.
Lifetime gifts, executed by the deceased to the beneficiary, erode the amount that is exempt from inheritance gift tax. According to the current interpretative address upheld by the Supreme Court (See No. 24940 of 6 December 2016 and No. 26050 of 16 December 2016), the exempt amounts available on death are not eroded by lifetime transfers (it is fair to say that the position of the Supreme Court does not seem to be shared by the tax authorities).
Inheritance and gift tax is levied on worldwide assets if the deceased or donor had his or her habitual abode in Italy on the date of demise or gift; otherwise, it applies only to Italian-situs assets.
The law sets forth non-rebuttable presumptions whereby certain assets are deemed to be situated in Italy. For example, the following assets are in any event deemed to be situated in Italy: assets enrolled in the public registers of Italy (such as real estate, ships and aircrafts, trademarks and patents) and connected rights of enjoyment in rem; shares and quotas of companies with either the legal seat or the seat of management or the main object in Italy; bonds and other securities in series, other than shares, issued by Italy or by the aforementioned companies; receivables and cheques if the debtor or the issuer is a resident of Italy (irrespective of the location of the security, if any); receivables secured by property situated within Italy up to the value of the property, irrespective of the residence of the debtor.
The inheritance tax return must be filed within 1 year from the date of demise by either of the individuals called to succeed and the legatees, their legal representatives, the administrators or the persons managing the estate. In the event of a gift executed in form of a donation in front of an Italian public notary, the notary is bound to report the gift to the Italian tax authorities. The tax is assessed by the tax authorities following the filing of the inheritance tax return or the reporting of the gift. Specific rules apply to gifts other than formal donations.
It is common gifting the bare ownership of assets to future generations by reserving the right of usufruct. This triggers the levy of gift tax on the value of the sole bare ownership, whilst the expansion of bare ownership to full ownership, upon the death of the usufruct holder, is not subject to inheritance tax.
No gift tax is imposed in Cyprus.
No inheritance tax or estate duty is levied in Cyprus.
According to Mexican Law, income derived from death is exempted for income tax purposes.
Nevertheless, individuals that have obtained income that exceeds the amount of $500,000 Mexican pesos during a tax year are obliged to declare all their income in their tax return, including income deriving from successions.
Lack of compliance could cause that the tax authorities deem all the undeclared income as cumulative income for income tax purposes, regardless of whether it was originally exempt.
An individual’s death might cause other taxes, such as Real Estate Acquisition Tax, which is a local tax that shall be paid by the individual that is inheriting a real state.
In Mexico City, this tax has a progressive rate that goes from 3.163% to 4.565% on the total value of the property, and shall be paid by the person who is inheriting the real state by means of a withholding made by the notary public at the time the acquisition takes place.
Regarding gifts, Mexican Law states that gifts received by individuals are exempt from paying income tax in certain cases, including the following:
- Gifts between spouses or those who receive the descendants of their ascendants in a straight line, whatever the amount.
- Those who receive the ascendants of their descendants in a straight line, provided that the goods received are not disposed of or donated by the ascendant to another offspring in a straight line without limitation of degree.
- All other gifts, provided that the total value of those received in a calendar year does not exceed three times the general minimum salary raised per year. For the surplus, tax will be paid in the terms of the Mexican Income Tax Law.
Regardless of whether the donation is taxed or not, individuals residing in Mexico are obliged to report in their annual tax return about the loans, donations and prizes obtained therein, provided that these, individually or as a whole, exceed $600,000.00 Mexican pesos.
Again, lack of compliance could cause that the tax authorities deem all the undeclared income as cumulative income for income tax purposes, regardless of whether it was originally exempt.
If the donation is not exempt for income tax purposes, the individual shall pay the corresponding tax at the progressive rate that corresponds to him as explained before (see question 2). Said tax shall be paid through the annual tax return, no later than April 30 the following year.
In addition, individuals that obtain income from taxed donations shall cover, as an advance payment, the amount that results from applying the 20% rate on the income received, without any deduction. The advance payment shall be made through a tax return that shall be filed within 15 days after obtaining the income.
a. There is no estate duty in Hong Kong in respect of deaths on or after 11 February 2006.
b. There is no gift tax in Hong Kong.
Currently, India does not impose any inheritance tax or estate duty tax. The Estate Duty Act, 1953 imposed estate duty tax. However it was repealed in 1985. There are reports that the Government is looking to reintroduce an estate/ inheritance tax.
Gift taxes are imposed by the ITA under the residuary income category, “income from other sources”. Certain specified intra-relative transfers are currently exempt from such tax. With respect to gifts between non-relatives, tax is levied on the receipt of the following:
(a) Any sum of money which exceeds INR 50,000;
(b) Any immovable property where the reckoner value of the property exceeds INR 50,000; and
(c) Any other property where the fair market value of the property exceeds INR 50,000.
The recipient of such sum or property is liable to pay the tax based on his/her individual slab rates. It is also relevant to note that these provisions taxing “deemed gifts” are not applicable to money or property received under a will, by way of inheritance, etc.
No inheritance and gift tax exist in Liechtenstein.
Both gift tax and inheritance tax are only applicable to assets located in Monaco. Other factors, such as nationality, or the place of domicile / residence, are irrelevant.
Gift tax is applicable to gifts evidenced in writing and/or a notarized deed that must be recorded.
The donee pays the gift tax (unless agreed otherwise) whereas the heir pays the inheritance tax.
The rates of taxation are the same for the two taxes and depend on the degree of relationship between the testator (or donor) and the heir (or donee):
• direct line between parents and children or between spouses: 0%
• between brothers and sisters: 8%
• between uncles, aunts, nephews and nieces: 10%
• between relatives other than the above: 13%
• between unrelated persons: 16%
Inheritance and donation tax rates depend on the tax group.
Tax groups are as follows:
1) Group I - spouses, descendants, ascendants, stepchildren, sons-in-law, daughters-in-law, siblings, stepfather, stepmother and in-laws,
2) Group II – descendants of siblings, siblings of parents, descendants and spouses of stepchildren, spouses of siblings and siblings of spouses, spouses of spouses' siblings, spouses of other descendants;
3) Group III – other persons.
Tax rates are as follows:
Surplus in PLN:
308.30 and 5% from the surplus over 10,278
822.20 and 7% from the surplus over 20,556
718.50 and 9% from the surplus over 10,278
1,644.50 and 12% from the surplus over 20,556
1,233.40 and 16% from the surplus over 10,278
2,877.90 and 20% from the surplus over 20,556
Inheritances and gifts may be subject to a 10% Stamp Tax (plus 0,8% in case of Real Estate).
However, relevant exclusions apply:
- Inheritances and gifts between (a) spouses or members of unmarried couples living under de facto relationships, (b) descendants and (c) ascendants are exempted.
- Under the applicable territorial scope, gratuitous transmissions with no connection with the Portuguese territory are not be subject to Stamp Tax.
- Under certain circumstances special exemptions may apply (e.g.: life insurance premium payments; payments from investment funds).
As a general rule, the individual’s demise should be reported to the tax authorities within 3 months by the heirs’ common representative (cabeça-de-casal). In case of gifts, beneficiaries should report the event to the Portuguese tax authorities within 3 months.
There is no inheritance tax in Russia and inheritances are exempt from income tax. There is no gift tax in Russia. It shall be noted, however, that gifts may be subject to individual income tax under the general provisions (Art. 211 of the Tax Code) if their subject is immovable property, vehicles or shares received from individuals other than close relatives such as spouse, parent, child, (grand-) parent, -child or sibling) (Par. 18.1, Art. 217 of the Tax Code). Gifts received from legal entities and individual entrepreneurs within the limit of RUB 4,000 (or equivalent) per calendar year are exempt (Par. 28, Art. 217 of the Tax Code) with the excess being taxed at the general rates of individual income tax (13% for residents and 30% for non-residents). The income from the gift shall be self-assessed and declared by the income recipient in the tax declaration for the tax period in which the income was received.
The Inheritance and Gift Tax is levied on individuals who are heirs and donees of certain assets, such as real property, cash in hand, savings and deposits, receivables, IP rights, moveable assets such as used automobiles, vessels, aircrafts, other movables (except specifically exempt ones). Inheritance and gift of certain assets, such as shares in companies and securities is exempt. Inherited or donated cash funds up to RSD 100,000 per year per one deceased or donor are also exempt.
Individuals who are regarded as tax residents for income tax purposes are also regarded as tax residents for the purpose of the Inheritance and Gift Tax. They are subject to the Inheritance and Gift Tax on inherited or donated assets situated in Serbia, as well as abroad. Foreign taxes paid on inherited assets or assets received as a gift can be credited against the Inheritance and Gift Tax (limited to the amount that would be calculated should the Inheritance and Gift Tax apply to foreign inheritance or gift).
Individuals who are regarded as non-residents for the income tax purposes are also regarded as non-residents for the purpose of the Inheritance and Gift Tax. They are liable to the Inheritance and Gift Tax only with respect to inherited assets or assets received as a gift situated on the territory of Serbia.
The Inheritance and Gift Tax is levied by assessment of the tax authorities, upon submission of a tax return by a heir or a donee. The tax basis is in case of inheritance, the market value of inherited assets less debts pertaining to such assets. In case of a gift, the tax basis is the market value of the gift.
The tax rates is 1.5% in case of heirs or donees who fall within the second statutory heir group in accordance with the intestacy rules (spouse, parents, parents' descendants).
The tax rate is 2.5% in case of heirs or donees who either fall within the third statutory heir group in accordance with the intestacy rules (grandparents and their descendants) or further statutory heir groups, or individuals who are not related to the deceased, or entities.
Tax return must be submitted by a person liable to pay tax within 30 days from the moment when the tax is triggered. In case of inheritance, the tax is triggered generally the date when the court decision on inheritance becomes final. In case of a gift, the tax is generally triggered when a valid gift contract or other instrument serving as the legal basis of a gift is executed in a proper form, or lacking such form, when the gift is received. A tax return can also be submitted via a public notary who executed a contract or a deed or a decision on inheritance (as the case may be).
Tax is paid upon assessment of the tax authority, within 15 days from receipt of the assessment.
Persons liable to pay tax are heirs (in case of inheritance) or donees (in case of a gift). However, in case of a gift, the donor is a subsidiary guarantor for the tax obligation of the donee (this liability becomes joint and several in case the donor undertook by contract to pay the gift tax).
Inheritance and gift taxes are levied exclusively at cantonal and communal level in all cantons, except Schwyz and Obwalden, if the deceased/donor was/is resident in the canton or if real property situated in the canton is transferred.
The applicable tax rate varies depending on the canton of residence and on the relationship between the deceased/donor and the recipient of the inheritance/gift and can be as high as 50% for gifts.
The rules for filing tax returns and the procedure in general also vary depending on the canton.
The US transfer tax system is three pronged: a gift tax applies to certain transfers made during lifetime; an estate tax applies to certain transfers taking effect at death; and a generation-skipping transfer tax (GST tax) is imposed on certain transfers made during lifetime or at death (or at the time of distribution in the case of a transfer from a trust) to a person (a skip person) more than one generation below the transferor. Some, but not all, states within the US also impose estate or inheritance taxes.
The US imposes a gift tax on donative transfers from a US citizen or domiciliary to donees other than a US citizen spouse or charity, except with respect to certain transfers for a donee’s education or healthcare. US gift tax is imposed on a flat 40% rate on cumulative taxable gifts (other than annual exclusion gifts) in excess of an exemption amount adjusted annually for inflation ($11,580,000 in 2020). Annual exclusion gifts are gifts of a present interest from a US citizen or domiciliary to a donee other than a US citizen spouse or charity that do not exceed $15,000 (for 2020) per donee (or $30,000 per donee (for 2020) if made by a married donor whose spouse consents on a US gift tax return to having such gifts treated as having come one-half from him or her). Gifts to a spouse who is not a US citizen that do not exceed $157,000 (for 2020) qualify for the annual gift tax exclusion. Outright gifts are considered gifts of a present interest. Gifts made in trust may be gifts of a present interest if certain withdrawal powers or termination provisions are present in the trust; the absence of such entitlements will cause a gift made in trust to not qualify as an annual exclusion gift. Reporting of taxable gifts and the payment of any US gift tax due thereon must be made by April 15 of the year following the year in which the taxable gift was made (with extensions available upon request). The gift tax is also imposed on non-resident aliens with respect to transfers of real and tangible personal property located in the US.
The US imposes an estate tax on the taxable estate of a US citizen or domiciliary. A US citizen’s or domiciliary’s taxable estate consists of his or her worldwide gross estate, valued as of date of death (or the earlier of the date of distribution or sale of the assets or the date that is six months after the date of death, if the effect of choosing this ‘alternate valuation date’ will be a reduction in the estate tax due), reduced by various deductions (such as debts, administration expenses, qualified distributions made to or for the benefit of a surviving US citizen spouse or charity) and credits. US estate tax is imposed at a flat 40% rate on a taxable estate above the estate tax exemption amount ($11,580,000 for decedents dying in 2020, reduced by taxable gifts made during lifetime). Nonresidents are also subject to US estate tax on US-situs property owned at death. US-situs property of a nonresident includes real or tangible personal property with a physical location within the US, shares of stock of a US corporation, certain debt obligations, deferred compensation of a US Person, and annuity contracts of a US obligor. Bank deposits and life insurance are not considered US-situs property of a nonresident. The taxable estate of a nonresident is taxed at a progressive estate tax rate capped at 40%, but the estate is allowed an estate tax exemption of only $60,000. US estate tax is due 9 months from date of death, although an extension of time to pay may be granted for reasonable cause. Likewise, for gross estates that exceed the estate tax exemption amount, a US estate tax return is due 9 months from date of death; an automatic 6-month extension of time to file is available. No further extension is available beyond 15 months from date of death. Under the concept of portability, for a married decedent who has not exhausted his or her available estate tax exemption, the filing of an estate tax return allows the porting of the deceased spouse’s unused exemption to the surviving spouse to avoid wastage of the predeceased spouse’s estate tax exemption. Portability is not available with respect to unused GST exemption.
The US imposes a GST tax on (1) outright transfers to skip persons (including trusts where all of the beneficiaries are skip persons), (2) distributions from certain trusts to skip person, and (3) on the assets of a trust where all of the remaining beneficiaries are skip persons upon the death of the last beneficiary who is not a skip person (GST transfers). In addition to any US estate tax or gift tax applicable to the transfer, US GST tax is imposed at a flat 40% rate on cumulative GST transfers above the GST exemption amount ($11,580,000 in 2020). US GST tax is due by April 15 of the year following the year in which the GST transfer was made or, in the case of GST transfers taking effect upon the donor’s death, on the due date of the US estate tax return in respect of the donor’s estate.
Property included in a decedent’s estate will qualify for a basis adjustment (commonly referred to a basis step-up, although the adjustment can be downward) to the property’s date of death (or alternate valuation date) value, for subsequent capital gains tax purposes.
Singapore does not have death or gift taxes.
However, stamp duties are payable on documents transferring interests in shares in Singapore companies and in Singapore immovable properties whether by way of gift or for consideration. The stamp duty rate for shares in companies is 0.2% computed on the higher of the actual price and net asset value of the shares. The buyer’s stamp duty rate for residential properties and non-residential properties is tiered and capped at 4% and 3% respectively, computed on the higher of the purchase price and the market value of the residential property. In addition, additional buyer’s stamp duty of 20% (also computed on the higher of the purchase price and market value) applies to foreigners buying any residential property. Nationals and Permanent Residents of Iceland, Liechtenstein, Norway or Switzerland and Nationals of the United States of America are eligible for remission of additional buyer’s stamp duty under their respective Free Trade Agreements. Corporates buying residential property are also subject to additional buyer’s stamp duty at the rate of 25% to 30%.
Further, seller’s stamp duty is payable where a seller sells or disposes of a residential or industrial property within a prescribed holding period. For residential properties purchased on or after 11 March 2017, seller’s stamp duty is payable at a tiered rate of between 12% and 4% where the residential property is sold or disposed within 3 years after the date of purchase. For industrial properties purchased on or after 12 January 2013, seller’s stamp duty is payable at a tiered rate of between 15% to 5% where the industrial property is similarly sold or disposed of within 3 years after the date of purchase.
As of this date, there are no estate, inheritance and generation-skipping taxes in Israel. Moreover, except for real estate transfers, there is also no gift tax on bona fide gifts, provided the donee is an Israeli tax resident. Real estate gifts are only subject to a fraction (up to 1/3) of the ordinary purchase tax rate, provided they are to certain permitted transferees (i.e. spouse, child, grandchild and grandparent; and under certain conditions – siblings).
In France, gift tax is due by the donee on lifetime gifts (see § 5.1.) and inheritance tax is due by the heir/legatee on death of the deceased (5.2.).
The same territorial principles apply to gift tax and inheritance tax. When the donor or deceased is or was a French tax-resident, gift or inheritance tax are due on all movables and real property situated in or outside France. When the donor or deceased is not or was not French tax-resident the following distinction has to be made:
- When the beneficiary is French tax-resident at the transfer date or has been domiciled there for at least six of the previous ten years, gift or inheritance tax is due on movables and real property situated in or outside France;
- When the beneficiary is not a French tax-resident, gift or inheritance tax is due only on the received assets deemed as located in France.
The main assets which are considered as located in France for gift tax, inheritance tax and wealth tax (see §4) purposes are the following:
- real estate properties located in France
- movable assets (i.e. furniture, pieces of art) located in France
- shares of companies registered in France
- debts when the debtor is resident of France
- shares of companies (French or foreign) owning real estate properties located in France having a market value exceeding those of their other French movable assets (“société à prépondérance immobilière”).
- shares of companies (French or foreign) owning real estate properties located in France directly or indirectly held for more than 50% by the same family members (only for the fraction of their market price which represent the market value of real estate properties located in France).
Transfers for no consideration of the above mentioned French assets between non-resident individuals are subject to either French gift tax or French inheritance tax.
5.1. Gift tax
Gift tax is due by the donee but can be paid by the donor. When this is the case the gift tax paid by the donor is not treated as additional gift.
Various allowances, for each fifteen-year period may apply depending on the donor’s relationship with the donee:
- parent and children in direct line: 100,000 €
- brothers and sisters: 15,932 €
- nephews and nieces: 7,967 €
- spouses or partners: 80,724 €
- grandchildren: 31,865 €
- great-grandchildren: 5,310 €
- disabled people: 159,325 €
- other beneficiaries: 1,594 €
Cash gifts benefiting to children, grandchildren, great grandchildren (nieces and nephews in the absence of direct descendants) are exempted from gift tax up to 31,865 € assuming the donor is under 80 years old and beneficiaries are over 18 years old or emancipated for each fifteen-year period.
The rates of gift tax for 2020 are also different depending on the donor’s relationship with the donee.
Lifetime gifts to spouse or civil partners do not benefit from the exemption which applies to inheritance tax (see below). They are subject to the following progressive scale rates:
- up to 8,072 € 5 %
- from 8,072 € to 15,932 € 10 %
- from 15,932 € to 31,865 € 15 %
- from 31,865 € to 552,324 € 20 %
- from 552,324 € to 902,838 € 30 %
- from 902,838 € to 1,805,677 € 40 %
- more than 1,805,677 € 45 %
Lifetime gifts between parents and children in direct line are subject to the same progressive scale rates from 5 % to 45% than those which applies between spouses or civil partners (see above).
Lifetime gifts between brothers and sisters are subject to the same progressive scale rates from 35% to 45% than those applying for inheritance tax (see § 5.2.).
Lifetime gifts between relatives up to the fourth degree, including nephews, nieces, grandnephews and grandnieces, aunts and uncles, grandaunts and granduncles, first cousins are subject to a 55% gift tax.
Other gifts are subject to a 60% gift tax.
Gift tax should be paid within 30 days after the lifetime gift or after its disclosure to the French tax authorities (for manual gifts).
5.2. Inheritance tax
Inheritance tax is due by the heirs.
Allowances described in § 5.1. apply to inheritance tax if they were not already used on gifts made during the fifteen-year period preceding the death.
The rates of inheritance tax for 2020 are also different depending on the deceased’s relationship with the heir.
A total exemption of inheritance tax applies between spouses and civil partners.
The progressive inheritance tax scale rates between parents and children is as follows:
- up to 8,072 € 5 %
- from 8,072 € to 12,109 € 10 %
- from 12,109 € to 15,932 € 15 %
- from 15,932 € to 552,324 € 20 %
- from 552,324 € to 902,828 € 30 %
- from 902,838 € to 1,805,677 € 40 %
- more than 1,805,677 € 45 %
The progressive scale inheritance tax rates applying between brothers and sisters is as follows:
- up to 24,430 € 35 %
- more than 24,430 € 45 %
The inheritance tax rate applying between relatives up to the fourth degree is 55%.
The inheritance tax rate applicable for more distant relatives and unrelated persons is 60%.
Inheritance tax should be paid within six months following the death if the deceased was resident of France upon his/her death and within one year if he/she was non-resident.
Transfers by death or gifts are subject to the German inheritance and gift tax (IGT). The tax rates range from 7 to 50 percent, depending on the relationship between the transferor and the transferee, and the value of the share of the estate received. Spouses and descendants pay IGT at a rate of 7 to 30 percent. Transfers between most other relatives are taxed at a rate of 15 to 43 percent. Between unrelated persons, the applicable tax rate is 30 or 50 percent (for more than € 6 million).
The following tax-free allowances apply if either the transferor or the transferee is a resident in Germany:
- spouses receive a personal allowance of € 500,000 and a maintenance allowance of up to a maximum of € 256,000; and
- descendants receive a personal allowance of € 400,000 and an age-dependent maintenance allowance of up to € 52,000.
IGT applies if either the transferor or the transferee is a resident in Germany. It must be declared and paid upon request by the fiscal authorities. However, the transferee is required to inform the authorities about the transfer within three months. Each transferee is liable for IGT on the value of the assets transferred, regardless of his or her personal wealth. In case of a gift, the transferor must inform the authorities and is liable for IGT as well, even though the transferee is to be charged primarily.
5.1 The principal tax on gifts and transfers on death is inheritance tax, which is a charge on transfers of value (§5.2).
5.2 Atransfer of value is a disposition by which the value of the individual's estate (§5.3) is reduced. On death, an individual is deemed to have made a transfer of value equal to the value of his estate immediately before his death.
5.3 Generally, the estate of an individual includes all the property to which he is beneficially entitled, property which he has given away (including by transfer into trust) but from which he continues to benefit, and (in some circumstances) trust property in which he has a life interest (§19.2). However, the estate of an individual who is neither domiciled (§1.9) nor deemed domiciled for inheritance tax purposes (§5.9) in the UK excludes property situated outside the UK so that, for such an individual, inheritance tax is only relevant to the extent that assets are situated in the UK. Non-UK property representing the value of UK residential property is for this purpose generally treated as if situated in the UK (including, in certain circumstances, loans or security for loans in relation to such property).
5.4 A transfer of value (§5.2) by way of a lifetime gift to an individual made seven years or more before the death of the donor is not charged to inheritance tax on the donor's death, provided the donor does not continue (after making the gift) to benefit from the property included in the gift. Transfers of value by way of lifetime gifts made during the last seven years of the donor's life are brought into account on the donor's death and added to the deemed transfer of value which takes place on the death itself (§5.2). The total of these transfers of value is then charged to inheritance tax (except to the extent that a relief or exemption applies), with an amount equal to the individual's available nil-rate band (§5.8) being charged at a nil rate and the balance being charged at 40%, subject to a reduction in the rate payable in respect of gifts made to individuals more than three years before the death.
5.5 Inheritance tax which is charged on the death of an individual is normally a liability of his personal representatives (§17.1). The tax must normally be paid no later than six months after the end of the month in which the death occurred, but may in some circumstances be paid in 10 equal annual instalments (together with interest on the unpaid instalments) if it is charged on land, certain kinds of shares or securities, or a business. Inheritance tax due on a death must be paid before a grant of probate (§17.1) can be issued to the personal representatives. Subject to exceptions for low value and simple estates, an inheritance tax return must be submitted to HMRC with details of the assets and liabilities of the estate. In practice, the personal representatives will file this return with HMRC in advance of the date on which the tax itself falls due, although the deadline for filing the return falls 12 months after the end of the month in which the death occurred.
5.6 Where a lifetime gift is charged to inheritance tax because the donor dies within seven years of making the gift, the tax liability falls on the donee, with a secondary liability falling on the personal representatives (§17.1) if the tax remains unpaid 12 months after the end of the month in which the death occurred.
5.7 Where an individual makes a transfer of value (§5.2) during his lifetime to the trustees of a trust (other than a bare trust or certain favoured kinds of trust), there is an immediate charge to inheritance tax at 20% to the extent that the individual's available nil-rate band (§5.8) is exceeded, with further tax being charged if the individual dies within seven years of making the transfer of value.
5.8 The full nil-rate band is normally £325,000, but is reduced by the value of chargeable transfers made by the individual in the previous seven years, and may be increased where the individual has been predeceased by a spouse or civil partner who did not use (or completely use) his or her nil-rate band. Where a home is left on death to a descendant or descendants and is within the scope of inheritance tax, the deceased's nil-rate band is increased by an amount called the residence nil-rate band (RNRB). The RNRB is £150,000 for a death in the tax year (§2.13) ending 5 April 2020 and £175,000 for a death in the tax year ending 5 April 2021, and can be increased where the deceased was predeceased by a spouse or civil partner who did not use (or completely use) his or her RNRB, and is progressively reduced where the value of the deceased's estate (§5.3) exceeds a limit which currently stands at £2,000,000.
5.9 An individual is deemed domiciled for inheritance tax purposes in the UK in a particular tax year (§2.13) if he has been UK-resident (§1.5-1.7) for at least 15 of the 20 tax years immediately preceding the relevant tax year and for at least one of the four tax years ending with the relevant tax year. An individual is also deemed domiciled for inheritance tax purposes (and known as a "formerly domiciled resident") in a particular tax year if he was born in the UK with a domicile of origin in the UK (§1.9), has acquired a non-UK domicile of choice, is UK-resident for the relevant tax year, and was UK-resident for at least one of the two tax years immediately preceding the relevant tax year. Finally, an individual is deemed domiciled for inheritance tax purposes in the UK at any time if he was previously domiciled in the UK within the three calendar years immediately preceding that time.
5.10 A gift made during the donor's lifetime is a disposal (§2.8) for the purposes of capital gains tax (§2.6), and is normally deemed for those purposes to have been made for a consideration equal to its market value at the date of the gift (but see §6.2). An asset passing on death is rebased to its market value (as at the date of the death) for the purposes of capital gains tax, with no capital gains tax arising on the death itself, so that an individual inheriting the asset takes it at a base cost which, for the purposes of capital gains tax on a subsequent disposal, is equal to its market value at the date of the death.