An inheritance tax in Cyprus is long overdue

Such a tax for the wealthy would ensure a fairer better serviced society and limit the prevalence of family dynasties

By Emily Yiolitis

Warren Buffet is not a believer of hoarding wealth within the family. In 1986, he told Fortune Magazine that the perfect amount to leave your kids is “enough money so that they would feel they could do anything, but not so much that they could do nothing”.

His position is that setting up his heirs with “a lifetime supply of food stamps just because they came out of the right womb” is both harmful for them and at the same time an antisocial act. In a similar vein, Steve Jobs’ widow, Laurene Powell Jobs says she isn’t passing her fortune down to her children. In an interview with David Gelles of the New York Times she says that she has dedicated her life to redistributing her late husband’s fortune “effectively in ways that lift up individuals and communities in a sustainable way” and doesn’t plan on building a family dynasty.

Encouraging rich children to be self-supporting and to carve out their own place in the world is undoubtedly good for them while as a matter of public policy, steering citizens to give back to society and to redistribute wealth on death can do much to decrease an ever-growing gap between the rich and poor.

In Cyprus we do not embrace this philosophy. We have no tax on wealth (a tax on immoveable property was introduced last decade and scrapped almost immediately) no inheritance tax, but we have forced heirship laws which prohibit the redistribution of assets upon death outside the family.

We have ‘fortressed’ the family dynasty in every way possible. So, if a woman who has €10 million in the bank dies, domiciled in Cyprus, with three children and no husband, then no inheritance tax is levied on her estate, and she is ‘forced’ by law to leave at least 75 per cent of her wealth to her three children. Only 25 per cent of her €10 million can she dispose of as she pleases. And it would be interesting to see statistically if Cyprus domiciled persons choose to manage/give at least that disposable portion or leave it all to the clan. In any case, if she dies intestate, this too will be divided by three. If she tries to dispose more than the allowed disposable portion outside the family, the disposition is automatically reduced to what is permissible.

The Cyprus policy message of no wealth tax, no inheritance tax and no testamentary freedom is clear. We want to maintain the privileges of the Cyprus-equivalent of the Vanderbilts, Carnegies and Rockefellers ad infinitum, to the detriment of the state, sustaining family dynasties, creating entitled children, depleting the economy and turning a blind eye to the growing societal inequalities.

In May 2021, the OECD published a report, Inheritance Taxation in OECD Countries. It provides a comparative analysis of inheritance, estate and gift taxes levied in 36 member countries and gives valuable insight regarding reform and the role that inheritance tax could play in raising revenues, addressing wealth inequality, encouraging charitable donations and promoting equality of opportunity and improving efficiency in the future. It is an interesting read, weighing taxes against long-term goals and highlighting policy questions we in Cyprus, through lack of even medium-term planning, have not even thought of.

Any tax is unpopular and inheritance tax is no exception. But we do not live in a vacuum and should the question of inheritance tax be better understood by the people and tailored to fit Cyprus’ policy goals – for example better education, a greener economy, a higher standard of healthcare – I would think that it would secure acceptance.

The proposition is not to tax ordinary people. The exemptions even as proposed by the OECD report are wide and generous, and include high income thresholds and exemptions on the family home, family business etc. Those who are ultimately taxed under most inheritance regimes worldwide (the UK being an exception) are the ultra-wealthy. The United States for example, which has the fourth highest estate or inheritance tax rate in the developed world, with rates of up to 40 per cent does not tax indiscriminately – such taxes come with high income thresholds. Most Americans in fact don’t have to worry about estate tax at all, as it excludes up to $12.06 million for individuals and $24.12 million for married couples in 2022, meaning most Americans won’t be charged tax on death at all. It is a wealth tax, on death, which redistributes resources in a manner which lessens the divide between wealthy and poor and gives back to the country.

The introduction of an inheritance tax on the highest 10 per cent income bracket of the population and allowing testamentary freedom would go a long way to creating a vision for how (and where if we do not want them to migrate) we want our children to live.

“I see nothing objectionable in fixing a limit to what anyone may acquire by mere favour of others, without any exercise of his faculties,” said John Stuart Mill, and the logic appears utterly compelling. Do we want to create an undeserving elite born by luck out of the “right womb” as Warren Buffett would say, or hardworking citizens incentivised to earn and for the state to provide equal –or at least a glimmer of – opportunity for all our children?

If, as I suspect, the answer is the latter, the government (and the incumbent presidential hopefuls) should consider and expound a vision for our state and how our tax system, including inheritance tax, can help drive us there. I, for one, would be very interested to hear it before I decide which way to vote.

Emily Yiolitis is a former justice minister