What is an inheritance?
An inheritance /ɪnˈher.ɪ.təns/ is something that a person passes onto somebody else after they die. If farmer John dies and his daughter Susan becomes the new owner of the farm, she has inherited it. The farm is her inheritance. John bequeathed the farm to Susan. The opposite of to inherit (receive) is to bequeath (give).
According to the Low Incomes Tax Reform Group:
“Inheritance tax (IHT) is basically a tax on the transfer of assets that you build up during your lifetime and then pass on to others. The passing to others might be during your lifetime, as a gift, or when you die.”
Look at these four related words – imagine you receive something from somebody after they die:
- An Inheritance (noun) – the money or thing that is bequeathed to you.
- To Inherit (verb) – the act of receiving something that is bequeathed to you.
- An Inheritor (noun) – (you) the person who receives the inheritance. We also use the term heir (female – heiress) for an individual who is legally entitled to a position, rank, or property of another person after they die.
- To Disinherit – to change one’s last will and testament to prevent somebody from inheriting something, i.e., to cut somebody out of your will. We also use the term to disown.
We call the tax that the government charges on the estate of someone who has died inheritance tax. Estate, in this context, means the property, other possessions, and money that belonged to the person who died.
Most countries have a tax-free threshold, i.e., if the estate is worth less than a certain amount, the inheritors do not have to pay tax on it. In the USA, people may refer to the tax-free threshold as the exclusion amount.
The tax exclusion amount is much higher in the USA than in the UK. In the USA, it is $11.18 million, compared to between £325,000 and £475,000. in the UK.
People in the UK and some other Commonwealth nations also use the term death duty colloquially (but not legally). In America, people might say estate tax.
In the UK in 1894, when inheritance tax as we know it today was first introduced, it was called estate duty.
Gifts before you die
Most countries have laws regarding giving your estate or part of it to people before you die.
In the UK, for example, if you give something to your son or daughter while you are still alive and survive for at least seven more years, the inheritors won’t have to pay tax on it when you die. If you die within seven years, however, they will be liable. In the USA, tax liabilities vary from state to state.