The Iranian National Tax Administration has slashed inheritance tax rates in the new Direct Taxation Law, streamlining inheritance tax payment procedures.
The cuts are so steep that they border on the surreal. Heirs had to pay over half of a deceased person's assets based on the previous law. Now that rate has dropped below 7% depending on the type of assets.
The new inheritance tax arrangement, coupled with chopped tax rates, aims to ease tax filing and payment.
"Previously taxpayers had to pay a lump sum on all the deceased's assets. Payable sums were hard to calculate and many heirs did not have the money. Now, they can transfer ownership of assets they need and it's easier to pay the low rates," Gholamreza Qeblei, INTA's public relations chief, told Financial Tribune in a phone interview.
The phrase "all are equal before the law" has been put to use, literally. The new regulations do not account for the actual amount of wealth being passed on. You would pay the same tax rate on a $10,000 bank deposit, as you would on a $10 million one. There is no distinction between the wealthy and the poor, when paying death tax.
> Assets and Taxes
INTA has set varied rates on different asset classes on which heirs are liable for taxes in the new law.
As for shares in exchange-traded companies, the administration already charges 0.5% tax on stock transactions. To transfer them from a deceased person to their next of kin, the rate rises to 0.75% of their sale value. Stakes in companies not listed on exchanges will be taxed at 6%. However, the rate is applied on the nominal price of each share, which is usually less than its actual value.
Motorized transport vehicles, including cars, trains, ships and aircraft, will be taxed at 2% of the price set by INTA.
Bank deposits and bonds will be taxed at 3%. However, INTA has inserted a clause in the law to help the government and Central Bank of Iran fight the many illegal credit institutions operating in Iran. While deposits in institutions overseen by the central bank get a 3% tax tag, deposits in illegal institutions will be taxed at 10%. The higher tax rate is aimed at discouraging people from working with unauthorized lenders.
Taxes on property owned by the deceased will be evaluated by two methods. If the property is sold, INTA will levy a 3% tax on the sum. Properties can be evaluated by experts and taxed at 7.5% of the set price.
Last but not least, any overseas assets will be taxed at 10%.
> Exemptions and Other Heirs
Heirs have to file tax statements within a year of a person's death, otherwise they may not deduct funeral expenses from taxable assets and will be fined double their due tax on inherited assets. The previous time limit for filing statements was six months.
The said rates apply to the nearest of kin, meaning spouse, parents, children and grandchildren. However, the rates double for siblings of the deceased and their children. For other relatives, such as uncles, aunts and their children, tax rates are quadrupled.
The tax code seems to leave out friends and other people specified in a will, though they may fall in the third category.
As before, life insurance claims and blood money remain exempt from tax. Also, assets of martyrs—those killed in the line of duty—are completely exempt from tax.
> Old Rates
To put things into context, the previous law did not differentiate between asset classes and taxed all the assets based on their amount. First of kin were obliged to pay 5% on assets of up to 50 million rials ($1,440 at market exchange rate).
However, anything left to other kin was slapped with a 51% and 53% tax tag respectively.
Assets worth over $1,400 up to $5,700 were taxed at 51%, even for the spouse and children. The maximum tax rate was leveled at other relatives, including uncles, aunts and their children, for inherited assets above 500 million rials ($14,400). They had to pay a 56% rate.
The old tax code was similar to what is applied in Europe and US. Though in the US, the federal estate tax exemption allows $5.43 million to be left to heirs without having to pay federal estate tax, as of 2015. The top federal estate tax rate is 40%.
In the UK, the current inheritance tax threshold is £325,000 per person. It doubles to £650,000 for a married couple, as long as the first person to die leaves the entire estate to their partner. Anything over this limit is subject to a 40% tax bill.
