Investment Outlook , Published Jan 18, 2018
Inheritance tax ‘has been in the crosshairs’ for tax reforms in India.
Speculation is rife about the reintroduction of Estate Duties – abolished in the 80s, when taxes peaked at 40% on the highest slab post the government’s bold structural reforms.
While the reintroduction may be aimed at bringing equilibrium in society, reducing the wealth gap and bringing in an additional source of revenue for the government, the fact of the matter remains – is the country ready for it? Estate taxes are prevalent in most developed countries such as Germany, UK and USA, that have economic and financial stability with structured social security, and retirement plans in place. As India does not have such facilities, the culture is to save for the future and the next generation. Hence a haphazard implementation may hurt the sentiments of the strata of the population likely to be impacted by it.
In most countries with Estate taxes, specially structured private trusts are used by families to mitigate its implications. In the event of a possible reintroduction of the Estate Duty regime in India, private trusts could be used as a planning tool to minimise the tax incidence. However, one must remember that these trusts have to be structured in a specific way to plan for this eventuality, and getting expert involvement would be the safer course. While no one can pre-empt the nature of future laws, you can always adopt prudence with well-thought-out succession plans for your own family. A good succession plan may use trusts for a variety of client objectives including continuity, mitigation of disputes, self-regulation, privacy, etc. including the possible reintroduction of Estate Duties
As the famous author Alan Lakein puts it “planning is bringing the future into the present so that you can do something about it now”.
Investment Outlook 2018