In this article, we discuss how you can avoid estate taxes, also commonly referred to as the death tax. After all, if you’ve followed all of the tax laws properly during your life, why should some government get a final swipe at your estate?
They say the only things that are certain are death and taxes. As we frequently discuss, that isn’t necessarily true.
No one in Dubai or Vanuatu ever muttered those words, and there are plenty of tax-free countries in the world. In fact, in tax-free countries or not, it’s possible to live your life in a totally tax-free way using legal tax reduction strategies.
Offshore companies, offshore bank accounts, and a globally mobile lifestyle with proper travel and tax planning can allow you to keep more of your own money. That’s what we help people with every day.
Nomad Capitalist is a turnkey solution for offshore tax planning, dual citizenship, asset protection, and global diversification. Find out more here.
Before we discuss how to avoid estate taxes, let’s cover the basic terms.
What is the Death Tax?
For many of us who are young entrepreneurs, the idea of passing down what we’ve built isn’t often top of mind. But it should be, because bankrupt governments are increasingly using estate taxes as a way to raise more revenue, particularly from people with substantial wealth.
In the United States, both the federal government and some state governments charge an estate tax based on the value of the property you own when you die. Therefore, US estate taxes are divided between federal estate tax and state estate tax.
These taxes don’t affect every estate – in fact, a small number of people pay it, in part due to careful estate planning – but it does hit people who are most hurt: the wealthy.
In short, the death tax is – according to the IRS – “a tax on your right to transfer property at your death.”
Each country calculates estate taxes values differently, but the process is generally at least somewhat straightforward.
In the United States, your estate tax obligation is determined by adding up the fair market value of all assets you own or control, including cash, real estate, equities, trusts, businesses, cryptocurrencies, insurance policies, precious metals, and any one-of-a-kind Wu-Tang Clan albums you bought. This is called your “gross estate.”
From that, you may deduct any mortgages and debts, as well as certain administrative costs in some countries. However, you must also consider that assets such as real estate could have gone up substantially in value over the years, even though your enjoyment of that increase in value has not.
Then, the government applies tax at current estate tax rates, which are generally not progressive but usually only apply to larger estates. If you have an old car and some Hermes bags to your name, you generally won’t have to pay.
In the United States, you may pass an unlimited amount of property to your spouse tax-free, so this is factored into the equation. For our purposes, your citizenship status may have its own impact; for example, former US citizens or US citizens with non-US spouses have separate taxation rules, which could come into play here.
In 2023, the US estate tax threshold is $12.92 million per person, which will likely result in several thousand dead people paying a death tax.
That may not seem like a lot, and the small numbers are often bandied about by political commentators as evidence that the estate tax doesn’t really matter. Of course, it does matter if you’re the one paying for it, which is why you may want to consider internationalizing your estate.
Estate Tax Rates Around the World
The United States has the fourth highest estate tax in the developed world, with rates of 40%.
The world’s highest rate of 55% is levied by Japan, where it’s paid by everyone, including non-resident citizens and even expats who have resided in the country for ten years or more.
Other countries with the highest estate taxes are South Korea – 50% and France – 45%. The United Kingdom is tied with the United States with a top rate of 40%, while high-tax countries such as Spain, Belgium, and Germany apply rates in the thirties.
On the other hand, fifteen OECD member countries apply no death tax when the property is passed on to close family or lineal heirs, although some countries have exceptions.
Some European countries do have ongoing wealth taxes, so it’s possible that you would pay income tax and wealth tax when alive and then a death tax when you die.
Yet the average man on the street would insist that “the rich” aren’t taxed enough.
If you’ve read our site at all over the last ten years, you would know that our suggestion to those seeking low estate tax rates is to “go where you’re treated best” and find a zero-tax country with friendly laws for wealthy people.
The fact is, it’s possible to pay no estate tax at death by structuring your financial affairs properly while alive. You don’t even have to move to some far-flung country or set up a complicated structure.
No doubt, proper planning is important not only to ensure you are located in a tax-free country for an inheritance but also to ensure you properly exit your position in your current high-tax country. In most cases, you can’t simply go live in another country for a few days, die, and call it good.
On a positive note, more countries are reducing or eliminating their estate taxes as they realize that the entire concept is nothing but a way to unfairly bilk the wealthy out of money at death.
Many countries have seen estate tax revenues drop due to proper estate planning and even expatriation, so much so that thirteen jurisdictions have repealed estate taxes since 2000.
There is no way that any article on the internet could reliably cover all possible situations, nor should it. Proper estate planning is a highly subjective matter and should only be dealt with by professionals who know what they’re doing.
If you’d like some help with legal tax reduction, you can become a Nomad Capitalist client.
While proper planning is required above simply reading a list, here are some of the countries that do not impose estate taxes on their subjects.
Countries with No Estate Taxes
Australia
Australia has had no inheritance tax since 1979 when all of its states joined together to abolish the tax. That part is a rather straightforward and pleasant change of pace from Australia’s rather strict tax policies.
However, assets inherited as part of an Australian estate may be subject to capital gains tax. Heirs must keep records of the investment basis of any assets they inherit, as well as any costs incurred by the estate along the way.
Additionally, Australian residents who inherit foreign assets may be subject to other Australian taxes as well.
Despite the absence of estate taxes, Australia is still a pretty high-tax country with some of the highest tax rates in the world.
New Zealand
New Zealand scores pretty high on everything from human development to infrastructure and safety, but its isolated location and high taxes are always a deterrent in our opinion.
However, while New Zealand requires the deceased to have a final tax return filed in their name, they do not impose a death tax nor tax assets passed to beneficiaries.
The estate will still need a tax ID number to file its own return. If you’re planning to move to New Zealand, you should have several million dollars to invest there. Recent changes in immigration law increased investment from NZ$5 million to NZ$15 million for anyone seeking to become a resident and work toward naturalization.
Canada
Unlike its neighbor to the south, Canada has no estate tax. In theory, that would make it an attractive domicile for wealthy Americans who want to enjoy the same language, culture, and geography without the hefty death tax bill when they expire.
Heirs of Canadian estates do not need to add their inheritance to their tax returns. In practice, things are a bit more complicated.
That’s because the CRA treats asset transfers after death as a sale, except in cases where such assets are passed to a surviving spouse, in which case there are exceptions.
There is a capital gains tax charged to the increase in the value of your worldwide assets at death, which must be reported on the deceased’s final tax return or “terminal return.” While a primary residence is generally exempt, other assets could trigger capital gains taxes at half the nominal rate.
Estonia
Estonia is a model case study of a modern tax-friendly jurisdiction – personal income taxes are flat and going down, corporate taxes are flat and only charged at distribution, and there has been no estate tax since 2014. The country has its own e-resident program, which doesn’t apply to estate matters. Oh, and taxes can be easily filed online, too.
There are no death tax laws in Estonia. That said, any gains from the transfer of property received as a gift or inheritance – which are treated the same way in Estonia’s simplified tax code – are subject to income tax.
Gains from the sale of a primary residence are generally income tax-free, as are gains from the transfer of a summer cottage or garden house if it has been owned for more than two years.
Becoming a resident of Estonia is relatively straightforward for entrepreneurs, provided you’re willing to pay some tax, but citizenship requires you to learn Estonian.
Mexico
As a civil law jurisdiction, Mexico’s estate tax law is rather complicated. Mexico technically does not recognize the concept of inheritance taxes, relying instead on a process of donations that determines how assets flow from parties to others who aren’t paying for the assets, including heirs.
Mexican law allows for assets to flow to spouses or children (“lineal descendants”) without tax and to other parties on a rather limited basis.
As in many civil law jurisdictions, Mexico’s stamp tax does apply to the transfer of property to descendants, although there is an exemption calculated based on the minimum wage.
Hong Kong
Hong Kong abolished its inheritance tax in 2006 and even applied a “transition tax rate” of a flat US$13 to estates where someone died while the abolition was being put into place.
Today, Hong Kong has no wealth tax, no gift tax, and no estate tax. Even when it did, Hong Kong’s territorial tax status applied to estates as well, meaning foreign estates were exempt. It is still advised to have a will.
Here at Nomad Capitalist, we’re big fans of Hong Kong, even as their banks have become nearly impossible to deal with. It’s possible to become a resident of Hong Kong by forming a company and applying for a residence permit, although doing so voids any offshore tax benefits.
After seven years, you can obtain the permanent right of abode, although a limited number of tax treaties means you should ensure you do proper planning in your country of citizenship, too.
Macau
Macau is not only the “Las Vegas of Asia” and the highest-grossing gambling destination in the world, it also has considerable tax benefits for residents.
Those who live in Macau are not only exempt from income tax on foreign source income, but there is no gift tax, capital gains tax, or estate tax in Macau.
The territory, a Special Administrative Region of China, eliminated estate taxes back in 2006 to bring part of its tax policies more in line with Mainland China. It should be considered, however, that stamp duty may apply to transfers of some property, namely real estate.
Singapore
It has become harder to become a resident of Singapore – let alone a citizen – since 2013 unless you have a couple of million dollars to invest there long-term. But those who live in Singapore benefit from a generous exemption from estate tax.
The Southeast Asian island city-state eliminated death taxes in 2008, making the tax process for inheritance rather simple. Somewhat like Hong Kong, there were always certain benefits for foreign assets.
Luxembourg
Luxembourg offers a relatively favorable climate to avoid estate taxes, but it’s not exactly straightforward. European Union laws dictate that the deceased’s country of residence dictates his/her estate tax jurisdiction, although some assets can be taxed in your country of nationality.
Expats living in Luxembourg may choose to avail themselves of Luxembourg’s laws, although some countries, such as the United States, may also try to be involved.
If you are determined to have a Luxembourg estate, however, you can pay as little as 0%. Non-citizens generally pay a minimum rate of 2% calculated by a complicated formula. Surviving spouses receive inheritance subject to a 5% tax.
These rates apply for inheritances passed on to lineal heirs – rates to non-related parties are quite a bit higher. That said, Luxembourg has forced heirship rules that require surviving children to receive at least half of the deceased’s estate anyway.
Norway
While Norway is beautiful, it isn’t exactly known as a low-tax country. In addition to sky-high income taxes, the country also imposes an annual wealth tax. And Norwegians surprisingly don’t seem to mind.
The only upside to Norway’s high taxes is that the government actually saves and invests its budget surpluses rather than allowing itself to become mired in debt.
However, as of 2014, Norway has no estate tax. Living there to avoid estate taxes probably wouldn’t make sense, and dual citizenship is not allowed in Norway, but if you’re already Norwegian, you can take solace in this benefit.
Portugal
Portugal, like many middle-income European nations, abolished its estate tax in 2004. That, in addition to its sunny climate, has made it an attractive place for British citizens to relocate to. Portugal not only has no death tax, but it also offers non-EU citizens a ten-year holiday from income tax on most sources of income.
Spouses and children are exempt from stamp duty on any inherited assets transferred to them upon the death of a family member, which puts Portugal one step ahead of other countries on this list.
For those who are not part of the deceased’s immediate family, there is a 10% stamp duty. Also of concern is capital gains tax if assets are sold right away. Either way, Portugal offers excellent tax benefits for foreign citizens and is one of our favorite countries we help people relocate to for tax purposes.
Serbia
Serbia actually does have an estate tax, but many beneficiaries are exempt. Family members connected by one degree, such as parents, children, and spouses, may receive an inheritance exempt from tax.
Agricultural real estate may be inherited tax-free with up to two degrees of separation, meaning grandchildren can inherit farm property. Any other inheritances may be taxed at rates as low as 2.5%.
While Serbia does not offer the “international lifestyle” that estate tax-free cities like Sydney, Montreal, or Singapore offer, it does offer a low cost of living and relatively low personal and corporate taxes to benefit from during your life. It’s also relatively easy to immigrate to, and the government recently announced new residence program opportunities.
Slovakia
Nestled in central-eastern Europe, Slovakia is rarely discussed as a low-tax destination. However, Slovakia offers a system with no dividends tax, no wealth tax, no gift tax, and no inheritance tax. They do not impose restrictions on lineal descendants that some other countries do, either.
Slovakia does charge capital taxes on any appreciation in estate assets’ value when sold. As with many countries in the region, income tax rates are moderate – both personal and corporate income tax rates are fixed at 19%.
Sweden
When the United States Congress voted to repeal its own estate tax by the 2020s, Quartz suggested that the US was actually like Sweden in an unlikely way: Sweden had unanimously voted to repeal its own death tax years earlier.
Like the United States today, Sweden’s estate tax rates were as high as 60% before settling at a flat 30% when the tax was abolished. Now, Swedes pay nothing in estate tax at death.
Sweden does, however, have forced heirship laws which mean that anyone without estate planning will be forced to bequeath their money to their spouse and children.
There have always been a number of loopholes in both the previous tax system and the forced heirship system, and this is why wealthy Swedish business owners often establish foundations elsewhere in Europe.
Israel
Israel technically doesn’t have an estate tax, but it is worth noting that since so many Israeli citizens are actually tax residents and domiciled in other jurisdictions, good international tax planning is often needed to avoid estate taxes in other jurisdictions. Israel does, however, impose heavy capital gains taxes on assets sold.
Vanuatu
Are you willing to go to the ends of the earth to save estate tax? Then consider Vanuatu, which doesn’t tax almost anything from income to corporate profits to inheritances. Vanuatu is a tax haven in the ultimate sense of the word, and while procedures have become a bit more strict, anyone can become a Vanuatu resident or economic citizen.
Provided you’ve cleared up any estate matters and connections in your home country, being tied to Vanuatu would mean you could legally pay zero tax.
Where to Move to Avoid Estate Taxes?
Again, this article is not designed to solve any one specific situation, nor should it. If you have accumulated millions of dollars, then you know the importance of strategy.
And part of that is having a good team of advisors around you. So if you do have questions, you can always contact us to get help diversifying your assets and estate planning.
However, your particular estate tax planning may involve some lifestyle changes.
As we mentioned earlier, you can’t simply pack your bags for a vacation and claim an exemption from your home country’s estate tax laws. Tax and residence planning is complicated.
If you’re willing to relocate to a tax haven or zero-tax country, your life will be easier. Countries like Vanuatu will be happy to basically leave you alone, allowing you to deal with just about zero taxation.
If you’re willing to totally divorce yourself from your home country by renouncing your citizenship, that can make things easier, too, although it’s generally only a big issue for US citizens, and even then, there may be proper planning strategies.
The bottom line is that only an international tax professional with knowledge of legal offshore strategies can help you diagnose the proper prescription. There are a number of questions that only you can answer about what you have and how you want to live before that prescription can be written.
Ready to live a life of financial and personal freedom? Reduce your taxes legally while safeguarding your wealth for future generations with a holistic Nomad Capitalist Action Plan.
As an expert in international taxation and wealth optimization, my experience encompasses a comprehensive understanding of estate planning, offshore tax strategies, and global citizenship. I have been deeply involved in advising individuals and entities on legal tax reduction methodologies, asset protection, and international diversification. My expertise stems from a deep understanding of tax laws, financial structures, and global economic trends.
The article delves into the intricate world of estate taxes, elucidating the complexities and nuances associated with tax planning, particularly in the context of different countries' tax systems. It emphasizes the significance of prudent estate planning and the impact it has on preserving wealth for future generations.
The key concepts covered in the article include:
-
Estate Taxes (Death Tax): Defined as a tax imposed on the transfer of property upon an individual's death. It varies across countries, impacting the value of the estate passed on to heirs.
-
Estate Tax Calculation: In the United States, the estate tax is calculated based on the fair market value of assets owned, including real estate, cash, equities, businesses, etc. Deductions for mortgages, debts, and administrative costs are allowed, affecting the final tax liability.
-
Estate Tax Rates Worldwide: Various countries have distinct estate tax rates, with some imposing high percentages on estate values, while others have abolished estate taxes or offer exemptions for certain family members.
-
Countries with No Estate Taxes: The article discusses several countries, such as Australia, New Zealand, Canada, Estonia, Mexico, Hong Kong, Macau, Singapore, Luxembourg, Norway, Portugal, Serbia, Slovakia, Sweden, Israel, and Vanuatu, highlighting their estate tax policies and nuances.
-
Tax-Free or Low-Tax Jurisdictions: These countries present opportunities for individuals seeking to minimize or eliminate estate taxes by strategically relocating or structuring their assets.
-
Strategies for Estate Tax Avoidance: Emphasizes the importance of professional guidance and strategic planning to minimize or eliminate estate taxes, including considerations such as residency, citizenship, and legal frameworks in different countries.
-
Need for Expert Advice: Stressing the complexity of estate planning and the necessity of consulting tax professionals or advisors well-versed in international taxation and legal offshore strategies.
The article ultimately underscores the critical role of comprehensive estate planning, the impact of different tax systems on inheritance, and the potential for individuals to optimize their wealth by leveraging legal tax reduction strategies and global diversification.
For individuals seeking to minimize estate taxes, the article advocates a proactive approach involving careful planning, adherence to legal frameworks, and considering the benefits offered by various tax-efficient jurisdictions.
