Estate Duty / Wealth Tax Revival Possibilities & Planning
Introduction
Around the world, governments are re-examining wealth taxes and inheritance taxes as tools to reduce inequality and increase revenue. Countries like the US, UK, South Korea, and several EU nations impose estate or inheritance taxes, while others levy annual wealth taxes on high-net-worth households.
In India, wealth tax was abolished in 2015, and estate duty ended in 1985 — but recent global trends and policy discussions raise questions:
Could India revive wealth tax or estate duty? Who will be impacted? How should HNIs, family businesses, and professionals plan ahead?
This blog explores possible scenarios, expected structures, and practical tax-planning steps for Indian families and businesses.
What Were Wealth Tax & Estate Duty in India?
Wealth Tax (abolished in 2015)
- Levied on net wealth exceeding ₹30 lakh.
- Tax rate: 1% of net wealth.
- Exempted assets: business assets, stock-in-trade, commercial properties, etc.
- Removed due to high compliance burden and low revenue.
Estate Duty (abolished in 1985)
- Levied on the value of inherited assets at death.
- Applied to movable and immovable properties.
- Rates went up to 40%+ for large estates.
- Replaced by increased capital gains and stamp duty frameworks.
Why Revival Discussions Are Emerging
Several global and domestic factors drive renewed interest:
- Wealth concentration has increased among top households.
- Global bodies (OECD, IMF) suggest wealth-based taxes for fiscal stability.
- Many countries levy inheritance or wealth taxes as standard practice.
- Indian policymakers are examining progressive tax options in long-term reforms.
While no formal proposal has been announced by the Government of India, the possibility of revival remains a relevant planning issue for HNIs and promoters.
What a Future Wealth Tax Might Look Like
If India revives wealth tax, it will likely be targeted, simplified, and aligned with global practices.
Possible features:
1. Higher Thresholds
Likely exemption limits of ₹10 crore, ₹25 crore, or even ₹50 crore to target only ultra-HNI families.
2. Limited Asset Coverage
May include:
- Second homes / luxury real estate
- Unproductive land
- Jewellery, art, collectibles
- Yachts, aircraft, luxury vehicles
Likely exclusions:
- Shares of operating companies
- Agricultural land
- Productive business assets
- Pension & retirement contributions
3. Annual Filing Requirement
Individuals above threshold may need to file a Wealth Tax Return with detailed asset valuation.
4. Valuation Norms
Independent valuation standards may be prescribed — similar to income tax rules for property and securities.
How an Estate Duty Could Be Structured
If estate duty returns, it may apply at death or during lifetime transfer.
Possible Features:
- Tax on inheritance of large estates (e.g., above ₹25–50 crore).
- Progressive slabs (e.g., 5% to 20%, internationally comparable).
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Exemptions for:
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Spousal inheritance
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Charitable trusts
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Small family businesses
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- Special relief for family-owned enterprises to prevent forced liquidation.
- Rules for valuation of unlisted companies, real estate, and trusts.
Global Models India Could Follow:
- UK Model: Tax on net estate with spousal exemption.
- US Model: High exemption limit, progressive rates.
- Japan/South Korea: Stringent inheritance tax with anti-avoidance rules.
Impact on HNIs, Family Businesses & Corporations
1. High-Net-Worth Individuals
- Net worth disclosure and valuation requirements may increase.
- Jewellery, luxury homes, and investment assets may attract tax.
- Estate planning will become essential to avoid high inheritance levies.
2. Family-Owned Businesses
- Succession planning becomes critical.
- Business continuity may be affected if estate tax leads to liquidity issues.
- Share transfers and partnerships may need restructuring.
3. Startups & Promoters
- ESOPs and shareholding structures may require careful planning.
- Holding companies or trusts may become standard for succession.
4. Real Estate Investors
- Second homes, holiday villas, or idle land may become costly to hold.
- Rental properties with clear cash flows may remain favorable.
Tax & Estate Planning Strategies
Whether wealth tax or estate duty is revived or not, the following planning strategies help families remain future-ready.
1. Create Family Trusts (Private or Discretionary)
- Smooth transfer of assets
- Control over distribution
- Potential insulation against estate duty
- Useful for minors and multi-generation planning
2. Consolidate Business Structures
- Use holding companies
- Ring-fence operating units
- Facilitate valuation and transfer without fragmentation
3. Convert Idle Assets into Productive Investments
- Shift jewellery, art or low-yield real estate into income-generating assets
- Reduces exposure to wealth tax bases
4. Gifting During Lifetime (if permitted)
- Structured, documented gifting may reduce future taxable estate
- Must follow income tax clubbing rules
5. Use Insurance for Estate Liquidity
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High-value life insurance can create liquidity to pay estate duty without selling core assets.
6. Maintain Clean Valuation Records
- Helps avoid disputes on wealth measurement
- Ensures compliance and reduces litigation exposure
7. Review Succession & Will Document Annually
- Due to frequent regulatory changes
- Reduces family disputes and ensures tax-efficient asset transfer
Case Example: HNI Family with Business Assets {#case-example}
Scenario:
A Kolhapur-based family owns:
- Manufacturing business valued at ₹50 crore
- Two residential properties
- Jewellery worth ₹3 crore
- Financial investments ₹7 crore
If estate duty is reintroduced with a 10% rate above ₹25 crore:
- Net taxable estate might be approx. ₹35 crore
- Potential estate duty ≈ ₹3.5 crore
Planning Approach:
- Move business shares into a family trust for smooth succession
- Consolidate real estate and clarify ownership
- Use term insurance to generate liquidity for heirs
- Ensure valuation reports for assets are updated
Result: Lower tax exposure, clearer succession, and asset protection.
FAQs
Q1. Is wealth tax or estate duty officially coming back?
As of now, no official announcement, but policy think-tanks and global bodies are encouraging progressive taxation tools. Planning early is beneficial.
Q2. Who will be impacted if wealth tax revives?
Primarily HNIs, promoters, family businesses, and individuals holding luxury or idle assets.
Q3. Can wealth held in companies be taxed?
Likely not — operating business assets are usually exempt to avoid discouraging entrepreneurship.
Q4. Will trusts protect assets from estate duty?
Properly structured trusts may offer protection depending on the law design — but rules can vary.
Q5. Are charitable contributions exempt?
Globally, estate duty usually allows full exemption for charitable bequests — India may follow this model.
Conclusion & CTA
While India has not yet revived wealth tax or estate duty, global trends suggest that high-value estates and ultra-HNI wealth may come under review. Instead of waiting for laws to return, HNIs, business owners, and families should begin succession planning, valuation, and trust structuring now.
At Verotus Finlegal Solutions LLP, we help you design tax-efficient strategies including:
✔ High-net-worth tax planning
✔ Family trust creation
✔ Succession & estate planning
✔ Business structuring for future tax changes
📞 Book a confidential consultation today to secure your family’s wealth for the next generation.
🌐 www.verotusllp.com
