Taxpayers in European countries are paying considerably more in inheritance and estate taxes than many other major economies and those in the UK is pay the most overall.
These taxes are often the focus of political debate because they are seen as discouraging wealth creation.
Many emerging economies, including China, India and Russia do not levy any estate or inheritance taxes at all. Some established economies have also taken this approach, with Australia, Israel and New Zealand all abolishing inheritance and estate taxes in an attempt to encourage the creation of wealth.
Ghana is one of several major emerging economies not to hamper wealth creation by imposing inheritance and estate taxes.
The UK and Irish governments take 26 and 25.8% respectively from an estate worth US$3m, well above the global average of 7.67%. The EU countries in the UHY study take 15.3% tax on the inheritance of a property of US$3million, nearly twice as much as the global average of 7.67%.
The growing band of opponents of inheritance tax argues that individuals are more incentivised to earn more in order to pass it on to the next generation. Inheritances are themselves often a crucial source of funding for new businesses, especially in countries where there is less bank finance available.
However, in some developed countries, including many EU countries and Japan, Governments are becoming increasingly reliant on the substantial income streams generated by inheritance tax. These taxes can also be seen as a way of creating tax revenues from ageing populations: retirees frequently have lower levels of taxable income, but substantial assets such as mortgage-free homes
Inheritance tax thresholds are a crucial issue for middle class families. If thresholds are not adjusted in line with inflation, it can mean that taxes, that were originally designed to apply only to the very wealthy, start to affect a larger proportion of the population. This is clearly the case in the UK where despite a booming housing market, the threshold for inheritance tax has remained frozen since 2009. Japan has gone further in the other direction and has lowered the threshold at which inheritance taxes start to apply, with the result that more families are caught by the tax.
In many countries, there are gifting exemptions that allow individuals to pass on wealth tax-free while they are still alive. However, many say that simply abolishing inheritance tax or increasing the threshold so it only applies to the very largest estates is preferable to complex exemptions.
Ghana gains a significant advantage over its global competitors by not having inheritance tax and should resist the temptation to introduce them.
