The New Zealand Government has earmarked NZ$5m for its Inland Revenue to review the income and wealth of high-net -worth individuals over two years, which coincides with the next election, prompting speculation that an inheritance tax may be introduced.
In the recently released IRD 2021-22 work programme, there is Inland Revenue research work involving the collection of information on the level of tax paid by high wealth individuals, according to a briefing note by New Zealand law firm Minter Ellison Rudd Watts.
It further cited 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.
It seems possible that a more targeted inheritance tax aimed at the “1%” (or even smaller percentage of the population) could be introduced.”
Louise Meng, laywer with Minter Ellison Rudd Watts. said: "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 decided to do this, the law firm said 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.