There is a growing social movement arguing that people should become wealthy by working hard, and not by inheriting wealth from their relatives. That is why many governments impose significant inheritance taxes, also known as “death taxes”. To illustrate, in Belgium’s Brussels capital region, a spouse or a child of a deceased person may be required to pay inheritance tax of up to 30%, whereas a sibling of the deceased may need to pay inheritance tax of up to 65%. In the same region of Belgium, if a non-relative inherits wealth, he/she may be required to pay up to 80% of the inherited wealth to the Belgian government.
Needless to say, many individuals are not happy to give to the government their hard-earned wealth. For example, a childless businessman and pacifist may want to donate his entire property in Brussels to a non-governmental organization working in the field of international peace rather than paying 80% inheritance tax which may be spent for purchasing fighter aircrafts, tanks, and weapons. Such an individual may avoid the hefty Belgian taxes by preparing and implementing comprehensive inheritance tax planning strategies. To facilitate the creation of such strategies, we provide information about 10 jurisdictions that levy no inheritance taxes. The examined jurisdictions are Hong Kong, Singapore, Portugal, Macau, Slovakia, Estonia, Mexico, Canada, New Zealand, and Australia. We arranged the jurisdictions in accordance with their attractiveness for estate planning purposes. The higher a jurisdiction is in our list, the more attractive it is for estate planning purposes.
Before analysing these jurisdictions in detail, it should be noted that a relocation to a jurisdiction without inheritance taxes may not help an individual to legally avoid inheritance taxes on his/her real estate located in jurisdictions imposing inheritance taxes. The reason is that only a few double tax treaties apply to inheritance taxes. In such cases, a foundation or a trust may help the individual to avoid inheritance taxes.
In 2016, Hong Kong abolished its inheritance taxes. Furthermore, it does not charge any estate, gift, and wealth taxes, and applies the principle of territorial taxation whereby only income earned in Hong Kong is subject to tax. This makes Hong Kong an excellent place for estate planning purposes.
Singapore eliminated its inheritance taxes in 2008 and simplified the inheritance process. It should be pointed that Singapore is discussing the reintroduction of inheritance taxes so people willing to rely on the country’s no inheritance tax status should proceed with caution.
Portugal may offer two important benefits to people interested in estate planning. First, the country does not levy inheritance tax. Second, it offers to non-EU citizens a ten-year exemption from income taxes on most sources. These two benefits, together with the Portuguese sun, have made Portugal a preferred location for many wealthy expats.
Macau is widely known as a tax haven. People living there are exempt from tax on income generated from outside Macau as well as from estate tax, capital gains tax, and gift taxes. It is worth mentioning that transfers of real estates may require payments of stamp duties.
Slovakia’s tax system does not include inheritance tax, gift tax, dividends tax, and wealth tax. Although Slovakia charges capital gains taxes on appreciation of assets when sold, the Central European country has relatively moderate tax rates. Individuals usually pay income tax between 19% and 25%, whereas the corporate tax rate is 21%.
Estonia does not charge inheritance taxes. Nevertheless, any gains from transfers of property received as inheritance or gift will be subject to income tax. The rates of the income tax are relatively moderate (20%).
Despite the fact that there is no inheritance tax in Mexico, inheritance and gifts are treated as income and taxed accordingly. The good news is that Mexican residents who receive income from inheritance are exempt from income tax. The same applies to income resulting from a gift of linear descendants, lineal ancestors, and a spouse.
In Canada, there is no inheritance tax. That does not mean that Canada is the place to be if you would like to legally optimize taxes. This is because, subject to a few exceptions, the Canadian tax authority treats asset transfers after death as a sale. A capital gain tax applies to the increase of the value of the transferred assets.
New Zealand does not impose taxes, including inheritance taxes, on the transfer of the assets from a deceased to his/her heirs. It should be noted, however, that a representative of the deceased must submit a final tax return in the name of the deceased. Individuals willing to relocate to the island “Down Under” for estate planning purposes should be aware that investment amounting to 3 to 10 million New Zealand dollars is required from individuals willing to become a resident of the southwestern country and walk towards the road of a New Zealand citizenship.
In 1979, following the lead of the Queensland Government, Australia abolished the inheritance tax. However, this does not make Australia a perfect place for estate planning since the country may impose capital gains taxes on inherited assets. Furthermore, Australia is notoriously famous for its high income taxes.
The above-mentioned discussion of 10 jurisdictions having no inheritance taxes clearly indicated that the lack of inheritance tax is just one of the factors which estate planners need to take into account before making important decisions. Even if a country does not impose any inheritance taxes, the inherited assets may be subject to capital gains taxes, stamp levies, and other fees. In many cases, experienced estate planners may prefer low inheritance tax jurisdictions offering more benefits than no inheritance jurisdictions having “hidden” drawbacks.
Bulgaria is one particularly attractive low inheritance tax jurisdiction. The Balkan country levies inheritance tax rates ranging between 0,4% and 0,8% on inheritances received by relatives in the lateral line and between 3,3% and 6,6% on inheritances received by other persons. Furthermore, inheritances received by a spouse and relatives in the direct line are exempt from inheritance tax.