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The abolishment of the Inheritance Tax in Norway

In this blog post, I would like to present and discuss some issues regarding taxation of inheritance. Inheritance tax is a special tax imposed on gifts and inherited goods or property. Until January 1, 2014, Norway had an inheritance tax system, which was stipulated in the Inheritance Tax Act (Arveavgiftsloven) of 1964. The law defined how much to be paid to the state in the case of inheritance or significant gifts, and how the tax was to be calculated. In 2013, inheritance (or advancement of inheritance) and gifts from the same person with a value above NOK 470,000 (EUR 50,000) was taxable with a tax rate ranging from 6 to 15 per cent dependent on the total value and who was the recipient (lower for next of kin) (Skatteetaten, 2015). Total revenues to the Norwegian state from taxing inheritance were relatively low. In 2013, NOK 34 billion worth of inheritance and gifts was taxable and in the same year, the public revenues from inheritance tax amounted to NOK 1.9 billion, roughly EUR 20,000 (SSB, 2015).

One of the main concerns of the state is the distribution of wealth in the society. An inheritance tax can be justified on the grounds of distributional concerns. Receiving inheritance implies that value is added to the recipient’s fortune. High-income, large-fortune persons tend to receive more inheritance and gifts, so by introducing an inheritance tax this group will generally pay more to the state and the tax could contribute to smoothen the societal wealth distribution. In addition to the distributional effect, the ability-to-pay principle of an inheritance tax is used to justify such a tax. The principle involves that taxes must be levied based on the taxpayer’s ability to pay the tax. In general, heritage tends to include very liquid assets. For example, cash or cash equivalents can be raised by inherited real estate, either from sale or rental. When a person receives greater wealth through inheritance, he will also have the ability to pay an inheritance tax. Like any other public tax, the inheritance tax would affect people’s decisions on for example how much to work, how much to spend on consumption and savings and investments.

Soon after they took office, the Conservative coalition government in Norway decided on abolishing the Inheritance Tax Act in their first national budget. Affective as of January 2014, there is no longer an inheritance tax levied on the Norwegian people (Regjeringen, 2013). There is, however, still room for a reintroduction if a future government should decide to do so. Several arguments for abolishing the inheritance tax were put forward. Firstly, the inheritance tax was said to often affect people with low or normal income and many perceive it as unfair if they have to pay high fees for inheriting their childhood home or family holiday house. Secondly, it was argued that removing the inheritance tax would facilitate generational shifts in family businesses by easing the liquidity burden. Moreover, it was intended as a simplification measure reducing administration costs for the state and for taxpayers who no longer have to deal with the extensive and somewhat complicated inheritance tax legislation.

The abolishment of the inheritance tax was not necessarily good news to all. Effectively, the system that took over introduced a tightening of the tax rules based on the so-called continuity principle, meaning that the recipient inherits his predecessor’s fiscal position. In practice, this implies that if you for example inherit an estate and sell it, you must pay a capital gain tax of 28% based on the market value of the property. Thus, you may actually end up paying far more in taxes than you would with the previous inheritance tax system. In the transfer of businesses, the continuity principle implies that the recipient must continue depreciation on the same basis as that of the deceased or donor. Should the recipient choose to sell; the appreciation in value of the business is taxable, while depreciation in value is tax deductible. Because of the difference in tax rates, the timing and who are subject to pay taxes, it is not so that the continuity principle offers a similar solution to the previous inheritance tax system. That would be a mere coincidence (Zimmer, 2015).

Some of you have maybe read Thomas Piketty’s popular book “Capital in the Twentifirst Century”, or at least an excerpt (Piketty, 2014). The core message of the book is that capital owners are taking an increasing share of the pie and that the inequalities in society are further amplified by inheritance of wealth. One may agree or disagree with some of the analysis of Piketty, but the fact is that several key issues that he is concerned with corresponds well with similar findings by large organizations that are normally quite conservative in their analysis such as the IMF and the OECD. The OECD points to a general reduction in taxes on high income and wealth to explain the increasing income inequality. Since, in many countries, the richest are becoming increasingly richer while the real wages of the rest of the population remain largely unchanged, an international debate on distribution mechanism to curb growing inequality has been fuelled.

So is economic inequality an issue in Norway? Looking at the share of top-income earners will only give us information on the concentration of income at the very high-end of the income distribution. It does not, however, provide any indication of the overall income inequality, i.e. the shape of the rest of the income distribution. Also, wealth tends to be more unevenly distributed than income (IMF, 2013). A commonly used measure of inequality is the Gini coefficient, which is measured on a scale from 0 to 1, dependent on whether the whole population has the same income or all income accrues to one person, respectively. There is not necessarily a relation between the share of top-income earners in a country and its Gini coefficient; for example, Norway and Portugal have a similar top percentile (pre-tax) income share, while the Gini coefficient[1] (in 2012) is significantly higher in Portugal (0.536) than Norway (0.410) (OECD Stats, 2015).

When the inheritance tax was abolished in 2014, the current Finance Minister in Norway pointed to the income inequality in Norway being among the lowest of the OECD countries, and that removing the inheritance tax would not change this. Although she is right in terms of the relatively low Gini coefficient, the trend in society that the very richest are taking up on an increasing share of the total national income led the OECD to recommend that Norway reintroduce the inheritance tax (OECD, 2014). The decision to abolish the inheritance tax in Norway must be seen in connection with the net wealth tax, transactional taxes on capital and property taxes, which are all instruments that can be used in order to level out income inequalities in society. In addition to obliterating the inheritance tax, the current Government are also very much in favour of reducing the net wealth taxes, looking to other countries where taxes on net wealth have been declining over the last 15 years. What should be noted, however, is that these ‘other countries’ also tend to have inheritance taxes or higher property taxes, or both. An IMF Fiscal Monitor report from 2013 also shows that in terms of total tax on wealth, Norway is already well below the OECD average (IMF, 2013).

Taxing wealth transfers via estate, inheritance or gifts tend to raise relatively little in terms of public revenues and the distortionary costs are hard to evaluate because it can depend on the motive of the benefactor. Thus, although the inheritance tax amounted to relatively insignificant public tax revenues for the Norwegian state, it could be argued that it had some important functions with regards to the distribution of wealth in society. Limiting transmission of inequality between generations should also be the main appeal of an inheritance tax system. Another reason to tax inheritance is be that it may reduce the distortion of work effort in the recipient that inheritance may foster. In my opinion, the latter argument would be an interesting topic for further studies, in particular whether the abolishment of the inheritance tax gives certain groups of Norwegian youths with prospects of high inheritance, advancement of inheritance and gifts a false security, in a reality where young people need to understand the relation between hard work and wealth.

Thea Sand


IMF. (2013, October). Retrieved from

OECD. (2014, May). Retrieved September 16, 2015, from Top Incomes and Taxation in OECD Countries: Was the crisis a game changer?:

OECD Stats. (2015). Retrieved September 16, 2015, from Income distribution and poverty – by country inequality:

Piketty, T. (2014). Capital in the Twenty-First Century. USA.

Regjeringen. (2013, November 11). Retrieved from Press release fact sheet:

Skatteetaten. (2015). Retrieved September 14, 2015, from Inheritance Tax (Obsolete):

SSB. (2015, September 12). Arveavgift 2013. Retrieved from Statistics Norway:

Zimmer, F. (2015). Arveavgift ut, kontinuitetsprinsipp inn. Oslo: Universitetet i Oslo.

[1] Gini coefficient as market income before taxes and transfers


Author: studentnovasbe

Master student in Nova Sbe

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