“It’s a common saying in Japan that Inheritance taxes are so high that family wealth does not last beyond three generations” – Akio Morita, Co-Founder Sony
Inheritance taxes (In Japan or Estate Taxes in United States) refer to the tax levied on the inheritor or beneficiary of the property/land/estates etc. after the original owner dies. This mostly applies to properties above a certain minimum bracket. Generally millionaires and above.
The arguments in developed nations supporting such an inheritance tax are as follows:
- People are forced to sell their assets (which they have not earned) and hence more property (including land) comes to the market hence reducing the real estate values and making available the property which would never have been sold.
- As lot of people work to earn money for necessities, the unearned money kills the incentive to work and increases the urge for early retirement.
- Easy access to unearned wealth destroys the incentive for hard work and experimentation.
- Pouring money on children (some times grown up adults) can spoil the children as they do not know the value of earned money.
- It reduces competitiveness and make people think about ways of preserving the assets instead of creating new ones. Some times, generations sit and eat because of the family wealth without doing any type of work.
You can read an interesting article about the advantages of Inheritance Taxes Here.
Also an article wanting the Inheritance Taxes back (Abolished decades ago) in Australia Here.
But there are dis-advantages too. The high percentage of Inheritance Taxes in Japan, for example, makes it difficult to run family business. An article on that can be read Here. Also people aren’t convinced about taxing money that has already been taxed. Some see it as a dis-incentive to make more wealth. It has also led to devising innumerable ways to avoid the inheritance taxes and consulting is booming on the topic.
Here is the take of Economic Times on the ‘immunity’ of such taxes in India. India along with China and host of other developing countries does not levy any inheritance taxes. Do you think India should have one?