Reading through the handouts of various election candidates, it would appear timely to remind accountants of the different types of death duty that may be encountered. Suppose a person dies and leaves ten million pounds to five children, who each receive £2,000,000. There are two types of death duty that may be charged.
Under an estate tax system, tax is charged on the estate of £10,000,000 less any nil rate band. In the UK, which has an estate tax, this would result in a tax charge a little less than £4,000,000.
Under an inheritance tax system, tax is charged on each inheritance of £2,000,000 less any nil rate band. This is the system used in the Irish Republic, and obviously the more children there are to share the inheritance, the lower the overall tax bill.
This distinction between estate tax and inheritance tax is international terminology. In the UK estate tax is wrongly called inheritance tax. We might talk about accessions tax when we want to refer to the Irish system.
Estate taxes do not penalise primogeniture, where everything is inherited by the firstborn (male) child. Inheritance taxes encourage equal divisions between children, which may look egalitarian, but has been disastrous for the vineyards of Burgundy.
All this should be part of the general knowledge of accountants in the UK. It isn’t on any exam syllabus, but you should know it anyway.
David Porthouse & Co is a firm of accountants based in Carlisle in North West England. We have a keen interest in new technology with the aim of speeding up accounts production and making accountancy more affordable for our clients.