What Is Inheritance Tax and Which Parts of a Deceased Person’s Estate Are Subject to It?

What Is Inheritance Tax and Which Parts of a Deceased Person’s Estate Are Subject to It?

It is widely recognized that taxation is one of the most important sources of government revenue. There are various types of taxes, including the inheritance tax. This type of tax, which has received significant attention in recent years, is among the most important forms of taxation. Inheritance tax is imposed on the assets left behind by individuals after their death. These assets are distributed among their heirs. The share allocated to each heir and the degree of kinship between the heir and the deceased determine the amount of inheritance tax payable. If, for any reason, inheritance tax is not paid, the heirs will not be permitted to exercise any ownership rights, including possession or transfer of the inherited property. It should also be noted that the laws governing inheritance tax differ before and after the year 1395 in the Iranian calendar.

A deceased person’s estate consists of assets, obligations, and outstanding debts. Under the rules applicable prior to 1395, the estate was first valued, and the tax calculated. Afterward, the deceased person’s debts and obligations were deducted, and exemptions were then applied. However, for individuals who passed away after 1395, a different legal framework applies. Under the current system, the deceased’s remaining assets are first categorized, and tax is then assessed separately for each property category.

The Concept and Nature of Inheritance Tax

How Much Is Inheritance Tax?

Under current law, the most important factor in determining the rate of inheritance tax is the class of heirs in relation to the deceased. First-class heirs benefit from the lowest tax rates, while higher classes are subject to higher rates.

• First class heirs: father, mother, spouse, children, and grandchildren.
• Second class heirs: grandparents, brothers, sisters, and their children.
• Third-class heirs: uncles, aunts, and their children.

Pursuant to Article 17 of the Direct Taxation Law, different types of assets are subject to different inheritance tax rates. The lowest rates apply to first class heirs, while second and third class heirs are required to pay two and four times the applicable base rates, respectively.

The inheritance tax rates for various types of property for first-class heirs are specified in the same article, and these rates are multiplied by two and four for second and third-class heirs, respectively:

• Motor vehicles, land vehicles, and marine vehicles: 2 percent.
• Concession rights and other financial rights: 10 percent.
• Real estate and rights of business location transfer: 1.5 times the rates stipulated in Article 59.
• Bank deposits, all types of securities, and related profits: 3 percent.
• Shares, partnership interests, and preemptive rights: 1.5 times the rates stipulated in Article 143.
• Assets of Iranian deceased persons located abroad: 10 percent.

Inheritance Tax Exemptions

The following are exempt from inheritance tax:

• Assets of martyrs of the Islamic Revolution, when transferred to first and second class heirs.
• Household furniture and essential items located in the deceased person’s residence, meaning basic living necessities and home appliances.
• Property transferred to ministries, government institutions, and public bodies whose budgets are funded by the government.
• Retirement benefits, pensions, service savings, end of service benefits, severance payments, compensation related to termination, unused entitled leave, social insurance benefits, and amounts paid by insurance companies, policyholders, or employers, including life insurance, personal insurance, and death compensation.

Are There Consequences for Failing to Pay Inheritance Tax?

Payment of inheritance tax is mandatory, and failure to do so results in legal penalties. If heirs do not pay the applicable inheritance tax, ownership of the deceased person’s assets will not be legally transferred to them. Below are examples of inheritance tax assessments for a shop, a vehicle, and a residential property.

• Shop: If the deceased died after 1395, an official expert from the Tax Administration shall first appraise the shop. Inheritance tax is then calculated at a rate of 3 percent of its value. In addition, 3 percent tax is also imposed on the value of the goods inside the shop.
• Vehicle: Vehicle inheritance tax is calculated at 2 percent of the appraised value determined by an official expert. For second and third class heirs, this rate is multiplied by two and four, respectively.
• Residential Property: The Tax Affairs Organization’s real estate commission first determines the value of the property. After valuation, 7.5 percent of the property’s value must be paid as inheritance tax. This amount is multiplied by two and four for other classes of heirs.

What Is Inheritance Tax and Which Parts of a Deceased Person’s Estate Are Subject to It? And Other Questions