Inheritance tax in anti-Labour

I'm suggesting that all this talk about 'unearned wealth' isn't taking into account the true cost of ownership. So the house she bought for £90k in 1994 probably cost her closer to £150k due to the interest she would have paid. This is an objective fact and something people often forget when they seek to calculate the 'profit' they have made on their house. Likewise inflation is often forgotten. It is very relevant because the combined impact of inflation and interest could mean that the poster with the house worth £350k has actually in effect already paid the equivalent of this amount with earned income. She would in effect be being taxed twice if you were to apply IHT.

Someone who bought a house in the 1960s or 1970s is likely to have accrued more unearned wealth from their house but it is wrong to assume that this is true for everyone that owns a house and dies. The system would have to be quite sophisticated to calculate what truly was unearned wealth and what was just a nominal increase in house value that in real times does not increase someone's wealth.

If you were left an estate that had £70k of IHT, you must have inherited a significant amount.

If my parents died tomorrow, my sisters and I could inherit £1m (between us) completely tax free.

If the estate you're talking about wasn't eligible for the £1m tax free, it would have been at least £325k tax free, then the £70k would have been 40% of the rest, so £325k + £105k (the remaining 60%) left after IHT.

Yet people still believe that Labour are the party for the working class.
That ceased long ago.

Ah, so £1m is not rich enough. It's the age old - "tax the rich but lets define "rich" as someone who is richer than me"

IHT is disgusting. Leeching off the bereaved at a traumatic time. I had to pay shy of £70K in IHT, which must be paid before you can apply for probate. Th bank account with the funds to cover that cost would not release the funds without probate so even though the money was 'there', we still had to incur fees and interest to even get the ball rolling, the probate office is a shit show, and on top of that, there is the mortgage to be paid and legal costs. There is nothing left. I have just been a pen pusher working for free by the government for the last three years (that's how long it took to get probate). Whilst I appreciate not everyone will experience the same, I am not th eonly one who has had to formally complain about the system and how it treats people.

You want the government not to tax you because you took a loan and paid interest?

Strange

Most people dying off now bought homes in the 60s and 70s

A home bought for 4k then would sell for around 60k now if homes had risen with inflation , but will in fact sell for around 300k

That's are 240k unearned wealth to my mind

Sorry to quote myself but I just wanted to add that most people would have paid around £60k in interest if the house was bought with a mortgage. Therefore unless you had the money to buy the house outright and if you take the average interest rate over the past 30 years then the cost of owning the house was never £90k but closer to £150K.

Factor in inflation and interest and suddenly it doesn't seem like you are sat on quite as much 'unearned wealth' as it initially seems.

I do think inheritance tax needs to be increased and I do think that would include people who have homes that have massively increase in value but I also feel like they need to go to the loopholes about inheriting farms and all the other nonsense

Because it's easy. Like cutting OAP winter fuel payments.

So the 90K you paid in 1994 would now be worth around £250k in real terms due to inflation. You have essentially made £100k in profit over 30 years and the bulk of the rise in the nominal value of your house is simply keeping you apace with inflation. Would it be right for the government to treat the whole £260k as unearned wealth?

I think it's important to highlight this as ignoring Nil rate bands and IHT thresholds, if you had to pay 40% tax on the value of your house it stands then you would actually have less money for your children to inherit than what that £90k would be worth in today's money.

Most of those with £1 million houses didn't pay anywhere near that for them or indeed pay tax on their asset when they die (IH tax being a liability for the beneficiary).
We live in the Midlands in the same house we bought 30+ years ago. Cost £90K, Current value £350k ? No tax paid on the increase in value. As it stands, with pensions, savings, inheritance from my parents, we are within the current IHT limit if we leave everything to each other then to our DS (which we hope won't be for another 30+ years) but if the limit is reduced, most of what the estate will be taxed on is our savings and investments (other than our house). How is that fair? Far better to charge IHT on massively increased house values which were never taxed or earned.

Even if inheritance tax is raised to affect more properties the beneficiaries still end up with significant wealth

I mean suppose the threshold is changed so that someone who would have inherited 500 k now ONLY get 300k - it's not cry me a river territory is it? Hey even if they had to share it with a sibling , I am still finding any reason to think "oh poor person"

That person is still substantially richer than most people in the country because of their hard work ... no hang on that's not right ... the hard work of their parents ... no that's not right either .. because they hit lucky with house price inflation.

And owning a home in London is doubly asset rich, with the added advantage that having a parent with dementia won't absorb the entire value of the house.

While they may not necessarily pay IHT, the trusts will be subject to other taxes that could be just as onerous.

First off, if the parents die within seven years then any assets put into the trust are still counted as their own and so will be counted for IHT purposes.

Secondly, any assets put in trust that are worth more than £325k per person are charged 20% at the time they are put in trust.

Then, every ten years the trust will have to pay 6% of the total value in tax. There are also charges when an asset is removed from the trust after ten years.

Then there is capital gains tax. This can be postponed for quite a long while but will eventually have to be paid (in most cases) based on the value of the asset when it first went into the trust.
.

All of the above applies if you put shares or a rental property etc into trust. What happens if you put the family home into trust?

Well, then the parents will have to pay the trust a market rent to stay living in the home or it will still be counted as belonging to them for IHT purposes. What's the current market rent on a £1 million home in London?

The Trust then has to pay income tax on that rent. Also, any increase in the value of the home will be subject to CGT when it is eventually sold and the estate will not benefit from the main residence nil-rate band so a married couple can only leave £650k instead of £1 million free of inheritance tax.

All in all, trusts - on their own - are not generally speaking a get of jail free card when it comes to IHT.

We need secure long term renting. I absolutely agree about that. That’s something that the government can and should address. The damage done by Right to buy is still being felt.

Remind me again how much IHT was paid when the Queen died?

I'm not sure about the faming thing. (Don't have a dog in this race, I can't walk by a field without reaching for antihistamines) But, is it wise to levy inheritance tax on the land that increases food security for the country? I mean, I expect it becomes completely unviable venture if you are lumbered with an exorbitant tax bill - given the size of profit generated from a farm. It'll just be sold on to a property developer to shake off the debt.

I don't know, maybe I'm missing something?

The very wealthy and those whose wealth has passed down through the generations do have accountants and trusts to protect that wealth. It’s always been the way. For every person involved in trying to close loopholes in tax law there will be a hundred people trying to find new ones. It’s a constant struggle but those people are taxed.

the assumption is that labour will get rid of that clause and tax on 500k. Which doesnt make you rich but in London means you have a 3 bed house in a pretty shitty area that certainly doesnt make you middle class.

It does mean you have £500k though! If someone lived in a rented flat and had £500k in various accounts would you think it’s unfair to expect their estate to pay tax on that?

You are falling into the trap of thinking that the 'true rich' are just people that are richer than you are. It's obviously hugely subjective and how 'rich' you are and feel can vary hugely depending on where you live in the UK and how you manage your money.

Those who have estates of £2 million plus end up paying a premium when it comes to IHT due to the reduction of the nil rate band. Of course you can put money into trusts to avoid this, but this money is taxed at the point of setting up the trust and can be taxed every 10 years. I think you misunderstand the complexities of estate planning.

I also think that you have to realistic and accept that estates worth £2 million + are not plentiful enough to raise the money that the government needs. There is also the risk that those with these kinds of assets will choose to leave the country rather than lose millions of pounds to the government on their death. It makes sense that estates of a decent size fall under IHT rules and that the rates stay sensible so that people are encouraged to be financially prudent in their lives and those with large amounts of wealth aren't incentivised to leave the country and shield their wealth from taxation.

You don't even know what Labour are going to do yet.

If working class/lower middle class people in London inherit a house from their parents, they can inherit up to £1 million (as long as the estate includes a property) without paying inheritance tax. Surely that's enough?

Surely we should be hoping that the loopholes that allow super wealthy people to avoid inheritance tax will be closed, rather than hoping that working class and lower middle class people can also avoid inheritance tax?