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Friday, August 26, 2016

Reynolds painting accepted in lieu of 4.7 million inheritance tax

In Canada, we don't have inheritance tax. We can inherit any amount from our parents and not pay tax on it. This is not the case in other countries. For example, in the U.K. there is such a tax, and for families with huge estates the tax bill can be daunting. In some cases, trying to come up with the cash to pay the bill would actually mean selling the bulk of the estate itself.

One of the ways the U.K. government deals with collecting these huge tax bills is by accepting valuable artwork and historic collections instead of cash. The items collected this way may make their way into British museums, or may stay in their original locations in huge manor homes, as long as they are viewable by the public (these manor houses are open for public tours). This works for the taxpayer, who gets to keep the house, land and the rest of the goodies. It works for the government, which collects and preserves important items that document the history of the nation.

Of course this doesn't work for the average man in the street, who doesn't own a portrait of titled ancestors that he can trade to the tax man. Then again, the average man on the street doesn't owe several million in inheritance tax.

The Arts Council England has recently announced that it has accepted a portrait of the 5th Earl of Carlisle, painted 200 years ago and passed down through the family that owns Castle Howard in Yorkshire to settle an inheritance tax bill of 4.7 million pounds (about $8,000,000 Canadian dollars). Click here to read the story and see the portrait.

This seems to be a workable scheme in the U.K. where the huge, fabulous manor houses have stood for hundreds of years and are chock full of historic valuables. Here in Canada, our history is much younger and we never did have a system of lords living large up in the big house. We don't have castles dotting the landscape the way the U.K.does. There really is no possibility of setting up a similar system here. However, it's interesting to see how a system with inheritance tax affects the citizens. And of course it's interesting for us to get a glimpse into how the rich and famous live.

The attached portrait of Castle Howard accompanied the article mentioned, and is credited to Richard Watson/Getty Images.

7 comments:

  1. 4.7million pounds is actually about $8million Canadian dollars.

    ReplyDelete
    Replies
    1. Oops! I missed a decimal point. An important one. Thanks for pointing it out. I'll edit my post :)

      Lynne

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  2. Quick comment....4.7 million GBP = almost $8 million Canadian.

    ReplyDelete
  3. closer to $8M CAD

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  4. The thing about tax in Canada is that it is not CALLED "inheritance tax" but on the day we die everything we own is presumed to be sold on that day, -- no matter what we leave to whom or the dollar value amount.
    As such, everything - no matter how small the amount - is taxed at a rate of 48%, and that is basically an inheritance tax by another name.
    I just wish the government would be more honest about that.
    Canada is an expensive country to run so the gov't will grab every nickel it can, but pretending there is NO tax when in fact someone who inherits a bank account, RRSP, or any other part of an estate will have to pay 48% tax on it is frankly deceptive.
    Worse, it leads to no end of difficulty for ordinary people who are not law-savvy and tax-savvy and justifiably do not understand why they cannot keep all of that $10,000 windfall from the bank when they were "told there is no inheritance tax".

    ReplyDelete
    Replies
    1. Not "everything - no matter how small the amount - is taxed". For instance, everyone is allowed to own a home which they can pass on or sell without being taxes. Their children can receive the home or the proceeds of the home without paying any tax on it. This is critical for a lot of lower income people who, when they pass away, only have their home and a small bank account.

      The difference between an inheritance tax and an estate tax is that the inheritance tax falls on the beneficiary while an estate tax falls on the estate. Therefore once the estate pays the tax owing, we as beneficiaries can receive our inheritance without paying tax on it.

      Lynne

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    2. Thank you for your clarifying response. I wasn't thinking of a house I guess, -- more like RRSPs and other liquid assets. The bank forwards those on to whoever is named beneficiary(s) without the funds ever becoming part of the estate. Banks do this without deducting any tax.

      I used a small example, but it would not be unusual these days for a beneficiary to receive a share over $100,000, and the recipient may not realize that it has arrived BEFORE taxes but that those taxes will be owing all the same.

      By continuing to tout the notion that Canada does not have inheritance tax, the government deceptively conveys the erroneous impression that money inherited by a beneficiary will be a gift in its entirety, and that's just not so, not when the poor sod finds out there is 48% owing on money received after the fact.

      The government does not call it an "inheritance tax", but that 48% is basically what it is by another name.

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