inheritance tax

inheritance tax, assessment made on the portion of an estate received by an individual; it differs from an

estate tax, which is a tax levied on an entire estate before it is distributed to individuals. The inheritance tax is usually progressive and is determined by the amount of property received by the beneficiary, as well as by his or her relationship to the deceased. Strictly speaking, it is a tax on the right to receive the property; the estate tax can be characterized as a tax on the right to transmit the property. All states impose either an estate tax or an inheritance tax, some states employing both. A related federal levy is the gift tax, designed to prevent people from avoiding inheritance and estate taxes by giving away property before death.

In the United States, the federal government levied inheritance taxes during the Civil War period and again during the Spanish-American War; since 1916, however, a progressive estate tax has been imposed. The U.S. tax law of 1981 greatly reduced estate and gift taxes by raising exemptions (from $175,000 to $600,000) and lowering rates, and a 2001 law calls phase out the federal estate tax by 2012; estate taxes in 40 states that are based on the federal tax credit for state estate taxes would be phased out in 2006.

---

inheritance tax

Levy on the property accruing to each beneficiary of the estate of a deceased person. Inheritance tax may be more difficult to administer than estate tax because the value passing to each beneficiary must be fixed, and this often requires complex actuarial calculations. Inheritance taxes date back to the Roman Empire. In the U.S. inheritance taxes have always been collected by the individual states, while the federal government has imposed an estate tax. The first state inheritance tax was imposed by Pennsylvania in 1826.

---

inheritance tax

1. (in Britain) a tax introduced in 1986 to replace capital transfer tax, consisting of a percentage levied on that part of an inheritance exceeding a specified allowance, and scaled charges on gifts made within seven years of death

2. (in the US) a state tax imposed on an inheritance according to its size and the relationship of the beneficiary to the deceased