Inheritance tax is a form of tax levied upon the bequests that a person may make in their will to a living person or organisation. If a bequest is made to a charitable organisation, most countries do not apply the tax.

In the United Kingdom, Death Duty was first introduced as a tax on estates in England and Wales over a certain value from 1796, then called legacy, succession and estate duties. The value changed over time and the scope of estate duty was extended. By 1857 estates worth over £20 were taxable but duty was rarely collected on estates valued under £1500.

Estate duty was replaced in 1975 by Capital Transfer Tax, which was replaced by Inheritance Tax (IHT) in 1986. Inheritance Tax is a significant revenue generator for the UK government, around £2.4bn in 2001. The current rate is 40% on the value of all the estate over £256,000. However, as the estate of a deceased person includes all of their worldly belongings, such as houses and the like, many people can fall foul of this tax. On death there is a minimum of 12 months of probate, during which solicitors assess the value of the estate and consider challenges. If there is insufficient cash to pay the tax and the solicitors' bill, then assets must be sold.

In order to avoid the tax, many people with large estates will practice some or all of the following avoidance measures:

  • The giving of money in a trust fund before death.
  • The giving of money before death (subject to a maximum before tax applies of some £5000 a year)
  • Transferring assets to a spouse

Canada has not had an inheritance tax since it was repealed by Brian Mulroney's government in the 1980s.