What is inheritance tax?
Why talk about inheritance tax?
Teaching children about money is important. You may think inheritance is something that kids needn’t really think about. However, the young are often the recipients of money from inheritances, and being able to answer the question “What is inheritance tax?” may well allow them to understand how money works over someone’s lifetime.
What is inheritance tax?
When someone dies, their money and possessions are inherited, or passed onto someone else. When this happens, the government sometimes takes a little, via a tax called inheritance tax.
What is estate duty? What is the death tax? Are these all the same thing?
There are different words used to describe different parts of this subject.
Strictly speaking an estate duty or estate tax is charged on a dead person’s estate (all the stuff they once owned, including their money and their house).
Inheritance tax is paid by the person who is inheriting the money or possessions.
Some people switch between these terms without really changing what they mean. Also, sometimes these taxes are called death taxes, though they’re rarely known by this name officially. Often, people who don’t like inheritance taxes or estate taxes call them death taxes, because the term sounds worse.
Why do some people dislike inheritance tax?
Some think people should only pay taxes during their lifetime, and that death, to quote the American economist Milton Friedman “should not be a taxable event.” Some also find it upsetting to sort out taxes for someone who has just died.
Why do some people like inheritance tax?
A lot of people like, or at least don’t mind inheritance tax, because it makes life fairer. By taxing a deceased person’s estate, you can make sure all of the money isn’t simply passed down from one generation to the other, but instead goes to pay for things that everyone can use, such as schools and hospitals.
Factoids
🏛️ The Romans had inheritance tax. It was called vicesima hereditatium and it took one twentieth, or 5% inheritance money; the cash raised was used to pay for things such as soldier’s pensions.
🇯🇵 Japan is the country with the highest inheritance tax rate of 55%, while many countries, including Sweden, New Zealand and Israel, have no inheritance tax at all!
🇰🇷 The highest inheritance tax bill ever was levied in South Korea, following the death of the Samsung chairman, Lee Kun-hee. The final amount was over £8 billion!
Talking to kids about inheritance tax
Stuck for a way to discuss inheritance tax with your kids? Try these talking points
The Queen and inheritance tax
In Great Britain, laws have been passed to prevent the Queen from paying inheritance tax. Some people approve of this, perhaps because they enjoy seeing a grand and wealthy head of state, and wouldn’t like to see the next monarch lose all these riches. What do you think?
Crime and inheritance tax
In Britain, America and other countries there are laws preventing murderers from inheriting their victim’s wealth if they are related.
Strangers and inheritance tax
Not everyone is treated the same when it comes to inheritance tax. Husbands or wives, and children or other relatives often receive special treatment, and have certain allowances that complete strangers don’t enjoy. And does anyone give their money away to strangers? Well the eccentric Portuguese nobleman Luis Carlos de Noronha Cabral de Camara did. He picked his beneficiaries out of the Lisbon phone book!
Charities and inheritance tax
Inheritance tax rules are also often kind to charities; usually they’re allowed to avoid paying the tax on inheritance donated to charity. This can be difficult for the daughters, sons or other surviving relatives of a wealthy person, who might be upset to see money going to help a donkey sanctuary, instead of going into their bank accounts.
Having some fun with it
Playing is a great way to aid the understanding of inheritance tax for kids. Why not try some of these learning games?
Pick a beneficiary
Not everyone gives their money away to their kids. Inheritance tax encourages people to leave their wealth to charities, or even amateur sports clubs. Who would you leave it to? Greenpeace? The World Wildlife Fund? Or your local football club?
Have an inheritance tax debate
Inheritance tax is a hot topic all over the world. Read through the expert opinions, as well as this guide, and perhaps do a bit more research. Then in teams of two, argue about the tax. One has to be for it, and the other one against.
Take an inheritance tax world tour
Inheritance tax is low in some countries, and high in others. Find out more about the countries around the world that you like, and try to work out if their rate is high, low or zero. Does the rate tell you something about the country?
You are the tax lawyer
Inheritance tax might sound high, but there are ways of lessening the amount you pay on inherited property, depending on whether you’re married, whether you leave your money to your children, or whether you give some to charities. Can you pretend to be a tax lawyer and work out inheritance tax limits, and maybe figure out the highest amount that can be inherited tax-free?
Expert View“Spend your money on riotous living - no tax; leave your money to your children - the tax collector gets paid first. That is the message sent by the estate tax. It is a bad message and the estate tax is a bad tax.”
Milton FriedmanAmerican Economist and Nobel Prize Winner
Expert View“It’s a very equitable tax. It’s in keeping with the idea of equality of opportunity in this country [the USA], not giving incredible head starts to certain people.”
Warren Buffett Billionaire American Investor.
We hope you’ve enjoyed these top tips to teach kids the value of money. You can see further Primers from RoosterMoney, such as talking about interest and talking to kids about helping others, here.
How RoosterMoney can help
Children can’t open bank accounts, but they can get used to the idea of having their money with the RoosterMoney app. And they can get started for free. Here’s how.
Find out more about RoosterMoneyYour kids can also get a pre-paid debit card, a bit like a bank card, via RoosterMoney. It's called The Rooster Card and it's great. You can find out all about it here.
Find out more about the Rooster CardKids can’t get their wages paid into a bank account just yet, but they can track the money they get paid for chores via the RoosterMoney app, that can help teach them about money and work.
Find out more about RoosterMoney and chores
