Back from the dead? High net worth tax review ignites inheritance tax speculation

From 1866 to 1992 New Zealand had an estate tax, and speculation is mounting that the Labour Government may re-introduce some form of inheritance tax, if re-elected at the next election.  The speculation follows:

  • the Government’s $5m allocation to Inland Revenue to review the income and wealth of high net worth individuals over two years, which coincides with the next election;
  • IRD’s just released 2021-22 work programme, which includes Research work by Inland Revenue involving the collection of information on the level of tax paid by high wealth individuals as a Stewardship policy item;
  • comments by the OECD that there are strong fairness arguments for inheritance taxes, particularly in countries that do not tax capital gains (such as New Zealand); and
  • concerns about increasing inequality as a result of tax free gains in the housing market in particular.

The Government has recently said the research Inland Revenue will undertake is purely an information gathering exercise.  And previously the Government has said that they were not looking at inheritance tax or other new taxes. But the recent introduction of the 10 year bright-line test and interest denial changes have led to a degree of scepticism being expressed by some on this.

We would be surprised if the Government decided to go into the next election proposing a wide ranging inheritance tax.  But it seems possible that a more targeted inheritance tax aimed at the “1%” (or even smaller percentage of the population) could be introduced.  If the Government decides to do this, there will be numerous technical issues to deal with including:

  • the safe harbours from the tax, including asset value thresholds, and potential exclusions for family homes and family run businesses;
  • the interaction with the tax rules for trusts; and
  • the potential need to re-introduce gift duty, to address perceived avoidance concerns.

No doubt the prospect of an inheritance tax will concern many families, who will want to keep a close eye on Inland Revenue’s review.

Co-authored by Louise Meng, a Solicitor in our Tax team.

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