Oh what a surprise - Tories say inheritance tax unfair

[WendyWeber]

BBC

What do they mean, ???

They are a damn sight richer than those who own no property and have no estate at all

[hunkermunker]

I hate to make this all about the London again...so I'll stop right here!

[WendyWeber]

Whaddya mean, hunker?

[Niecie]

Hello WendyWeber

Depends what you call rich. In the South East it could easily be the case that somebody is living in a house that has appreciated in value over a large number of years. They may have no other assets other than the house which isn't by any stretch of the imagination a palace and yet their family have to stump up inheritance tax when they have no cash or assets either.

Obviously there are people who would be very grateful to have the problem of having to pay inheritance tax but that doesn't make it fair that the threshold has hardly changed for years.

[hunkermunker]

Lots of people who bought houses in London suburbs for half a crown back in the 1930s and are v elderly now live on state pensions and yes, their house might be worth money, but if they sell it they'll have to move miles away from family and other supoprt networks like familiar churches, etc, plus leaving memories of family home.

[Niecie]

The point is hunkermunker, that the problem is not just restricted to London any more. There are loads of places where the average house price is close the inheritance tax threshold. That is why it is a problem, isn't it.

[WendyWeber]

Yes, but if they sell their own house it's not an inheritance tax issue. If it is an inheritance tax issue then the person concerned has died, and it just means their descendants inherit less - the tax comes out of the estate.

I honestly don't see the problem.

[TheDuchessOfNorksBride]

Why should people pay tax on their life-earnings twice though?

London v. Leeds. Geographically it is unfair.

[WendyWeber]

In what sense is house-price inflation life earnings though?

[hunkermunker]

Yes, I think you're right - inheritance tax was originally intended for the frantically wealthy, I thought, and now it seems it's like A-level results - even being frantically wealthy is dumbing down!

[Niecie]

But where would they get the money to pay the tax. 40% of £285k is £114k (I think, I don't have a calculator to hand). You can't have the assets in the estate until you pay the tax so how are most people going to find that sort of money?

[WendyWeber]

You have to pay the tax before you can sell the house?

[hunkermunker]

Yes, they can move. But my point is that often elderly people won't want to move, for all sorts of practical and sentimental reasons.

It's not as easy as "well, move house if you're worried about it".

[TheDuchessOfNorksBride]

So people should be taxed on property inflation? I think not. Nobody gets a tax rebate when the market crashes.

[Niecie]

'Fraid you do have to stump up the money first. You were able to put in place some sort of trust to ensure that the money was available upfront but dear old Gordon Brown has stamped on them and they are no more.

[hunkermunker]

Don't you only pay 40% above £285,000?

[WendyWeber]

Table of thresholds here

They have moved up quite steadily in fact

[Niecie]

yep, all inheritance tax is charged at 40%

[hunkermunker]

Interesting article here

[WendyWeber]

Nobody is taxed on property inflation - people are taxed on inheritance based on property inflation - different thing altogether.

[Niecie]

The thresholds may have increased but nowhere near the rate of house price inflation.

[WendyWeber]

So what happens if you have an estate owing inheritance tax and the recipient can't pay the tax before the house is sold?

[hunkermunker]

"WHEN Labour came to power in 1997, the inheritance tax threshold stood at £200,000. Today, it is £285,000, an increase of 42.5%. But over the same period, house prices have risen on average by 140%. Millions more households are now caught in the IHT net."

First paragraph of that article I just linked to.

[hunkermunker]

And also, the tax isn't hitting the people for whom it was originally intended, because they make very sure their estates are IHT-proof through careful planning.

[WendyWeber]

The "average house price" in the UK is still way below the inheritance tax threshold though and I bet the relationship hasn't changed that much since 1988 when the table I linked to was published.

It may hit harder in the SE but then people in the SE who already own property have benefited more from price inflation. You can't have it both ways...

[Niecie]

Whoops got my sums wrong - I thought it was an all or nothing tax like stamp duty. Even so, there will be plenty of people who will have trouble paying even a few thousand in tax if they only asset they have is the house they have inherited.

IHT was always meant to tax the rich and it doesn't really do that any more.

Shame my DH has gone to bed - he know more about this stuff than me. I have a tendency to nod off at the mention of the word tax.

By the way what is the point of stamp duty? IHT I can see is a tax on unearned income and really it is the thresholds and the workings of it that aren't fair not the general principle but stamp duty? [sceptical]