How UK inheritance tax compares with other countries

Unlike other nations, the UK completely exempts all gifts from taxation if they are made far enough in advance of death

A change to inheritance tax (IHT) rules could cost the families of single homeowners more than £80,000 in death duties, new analysis has shown, even if they die before reaching pension age.

A working-age single homeowner in England with an average-priced home of £290,395 and a moderate pension pot of £415,000 could face an IHT bill of £82,158, according to calculations from Quilter.

Changes made by Rachel Reeves in the last autumn Budget mean unspent pension savings will now count towards a person’s estate for IHT purposes regardless of age at death.

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Here, The i Paper takes a look at how inheritance tax in the UK compares with other countries.

How IHT is applied

The UK is one of only four OECD countries to tax the estates of deceased donors, according to the IFS.

Other countries tax the recipients.

Most OECD countries apply progressive IHT rates on recipients. This is different from the UK, which is one of only seven countries to apply a flat rate above an exemption threshold.

Fifteen countries surveyed by the OECD applied progressive rates – a rate that increases as the taxable amount increases.

In Belgium, the rate is up to 80 per cent.

Exemptions ahead of death

The UK completely exempts all gifts from taxation if they are made far enough in advance of death, which is unusual.

Other countries treat gifts before death differently from inheritances and implemented tax-free thresholds.

In the UK, gifts must be made seven years before death to be exempt from IHT.

This is longer than in other countries that have similar restrictions, which are typically applicable for one to three years.

Exemption amount and rates

The UK’s exemption amount is higher than in most other countries but the tax rate of 40 per cent is also higher.

Among OECD countries, only Italy and the US have higher exemption thresholds.

Compared with other countries, very few people in the UK pay IHT.

By contrast, in Belgium, 48 per cent of inheritances attracted taxes, the OECD found.

The UK is in the upper half of OECD countries in terms of the revenues received from IHT as a proportion of GDP.

Revenues are substantially higher than in the US or Ireland but less than half of the amounts raised by Belgium, France and South Korea.

Austria, Portugal, Sweden and Norway all abolished their inheritance taxes within the last 20 years.

Italy and the US have reduced the scope or rate of the tax, while in Germany substantial new reliefs were introduced.