The really rich don't pay inheritance tax

So what if it is taxed twice and so what if you think it is fair? What are the RESULTS of these things in terms of peoples behaviour?

My last post was expanding on an example mentioned in an earlier post so my apologies.

Another example would be below (this one is fictional so it may not be totally totally accurate but will put the figures in the ball park)

My DH earns £100,000 p/a (sadly not the case but for examples sake and my baby brain)

On that he pays 40% on anything above £37,400 and 20% on anything below so total annual salary post tax = £67480 being taxed £32,530 p/a

Of which we save £50k p/a so over 10yrs have 500K (excluding interest etc for examples sake)

My DH and I die leaving this for the care of our dd, she then pays £70K in tax on this leaving her 430K - great loads of money but the mere fact is over 10 years the amount of tax paid on this sum is £395,200. Now sounds great but that doesn't take into account that this CAN include your property (if you live in the south, you would be over tthe threshold already.....so are likely to have to see as highly unlikely to have a mortgage free home)

I am afraid I do think that is unfair, it is taxed twice and if this is over a 10 year period the only person getting a windfall is the govt as if property is involved none of this is going to be cash in hand, in addition there will be tax implications too if the property is sold so you are being taxed on being taxed on being taxed. So no it won't matter a jot to me but if I leave a 2 year old with nothing AND no family then I think that the govt would be massively unfair to her.

Minipie - I don't see that fairness is a useful or laudable aim. If you want to make the tax system 'fair' you will inevitable be distorting peoples behaviour. The effects of this may be even more unfair. Better to be honest about what effects you are trying to create. If you WANT to see people spending rather than saving as they approach the later stages of their lives then increase inheritance tax. If you want them to enrich their descendants reduce it.

This decision should be based on how the outcomes of each of those choices effects wider society (so which is 'fairer' I suppose) - not on a perceived fairness around how much money each of us gives the state.

Doodleydoo - your example is very sad but I don't really understand how it is to do with inheritance tax?

oojimaflip - yes, I suppose a higher inheritance tax/lower income tax system would be hard on someone who cannot earn but has inherited lots. But I can't see any reason why someone who can't earn but has rich parents should have a better lifestyle than someone who can't earn and has poor parents. (in general, I think that state provision for those who genuinely cannot earn should be increased - perhaps using the money brought in by increased inheritance tax...)

you say "it's a way of getting people to focus on increasing income instead of inheritance". Yes, that's true. But that is fairer, because people do at least have some influence over how much they earn. People have no influence over how much they inherit.

Doodleydoo - Your example is about how to provide care for the elderly rather than tax though isn't it?

Doodleydoo - You haven't paid tax on it twice. You paid tax on it, then your descendants pay tax on it when it is their income.

minipie - Ok - you might wan't that but it isn't 'fairer' is it? It's a way of getting people to focus on increasing income instead of inheritance.

Very unfair on someone unable to earn a large salary due to a disability of some sort who inherits a large amount of money for instance.

See my post at 00:17:45.

ok minipie - just wanted to give you an example that I had heard the other day.

A couple save for the entire of their lifetime, going without fancy holidays, new cars and luxuries even though they could afford it because they were saving for a rainy day.

The husband got ill, very quickly and because they had above the threshold in savings (over the entire of their married life and career) they weren't entitled to any free care when he became ill with Alzheimers, fast forward three years the wife is on her own, has NO income whatsoever, no home and now has to be looked after by the state and she could well have a couple of decades in front of her. She also no longer has the love of her life and they had planned to spend that money together in their retirement years. How is that fair? These people have both worked hard, saved money and paid large amounts of tax to pay for everyone else but there was nothing for him and her when they really needed it.

Mmrsceptic - It's a question of whether you see money people's parents (let's say) have earned as belonging to them, or belonging to their wider family.

Personally, I think people's money belongs to them alone, not their wider family. It is their right to spend it all on themselves.

Many people argue, as you do, that higher inheritance tax will result in people spending all their money and relying on the state. I doubt it. State provision for the elderly is sufficiently pathetic that those who do have money are likely to be careful to make it last.

Expat Non Dom's pay an estimated £4bn in UK tax (and contibute an estimated £12bn to UK GDP).

The whole point is if you save money and leave it as an inheritance that you have worked hard to get, YOU HAVE ALREADY PAID TAX on it so why do you need to pay again. Inheritance tax is so very unfair on so many people that when my GF died my father and GM ended up with nowhere to live. How is that fair, having to sell everthing to pay death duties and inheritance tax? Daft, especially as they were what you would consider to be quite well off at the time......

I think trustfunds are a great idea to stop the govt taking shed loads of money from your loved ones, I also don't believe you have to be incredibly rich either to have one and considering setting one up for my dc in the future with any assets I may have (if I have any......)
By taking everything in inheritance tax I think it would be detrimental to the country in the future. Think of entrepreneurs such as Richard Branson, what would be the incentive to better yourself and your family all for it to be taken away at the end of each generation to start over again. The state will end up paying for everyone and no one will be contributing to it, or the hyper rich would move out of the uk, meaning their money would NOT be spent here, taxed in anyway or bringing anything into the country.

This is already happening to some extent and tthe more unfair it becomes the less likely the rich will be to invest in this country and therefore do anything for this country in the long term.

85% Inheritance tax is ludicrous, there are sso many cutbacks that could occur prior to going down this road and screwing over any future this country has of getting out of the recession and building on its funds again.

Wrong, minipie. You assume that on death it by right should go to the state instead of remaining with the family.
That the family is somehow privileged, or lucky, that it is fate or good fortune or undeserved.

What an incentive to save! What an incentive to prepare for the future! I don't think. It's an incentive to spend all your money and rely on the state.

"A 'fair' taxation system would be a flat percentage on all income of any sort."

I agree, except that I think it would be fairer to pay a higher flat rate on income you haven't worked for (ie inheritance) than on income you have worked for. eg, I'd much rather pay 15% income tax and 85% inheritance tax, than 50% on both.

I don't see what fairness has to do with taxation. A 'fair' taxation system would be a flat percentage on all income of any sort.

Once you move away from that what you are doing is encouraging/discouraging particular behaviours - which is not 'fair' but may be right.

mmrssceptic

It will not be you who pays IHT. It will be your heirs. They did not earn the money, nor did they pay tax on it.

Alouiseg

Why should I have any rights over what my money is spent on after I'm dead? I'll be dead.

ronshar

it's an instinct for fairness. it is already unfair that some kids get brought up with loads of money, others don't. that is compounded by letting the richer kids inherit.

Do I think homeowners should have to sell their property to pay for care? No, not if non-homeowners get care for free from the govt. But if they don't sell, their heirs should be taxed highly on the value of their home when they die. The effect would be to encourage elderly homeowners to sell their home (perhaps by sale and leaseback if they want to stay there) and spend the proceeds on themselves - perhaps on buying a better standard of care than what is given for free.

"I think IHT is the fairest of all the taxes we pay."

Yes, work hard all you life, save and then the Govt will spunk the lot for you on something that you probably won't agree with.

Minipie, can I ask if you agree that people should sell their property to pay for care homes/nursing care?

Too sunny for an argument but I am always interested in why people have such opposite opinions about IHT.
Is it an ideological stance or a political one or just an instinct for fairness?

Funny old world we live in.

'i am in favour of fairness for all' where have I heard this strap line recently?

how do you work that out, minipie?

we've saved and saved on money earned and taxed

if we were to die tomorrow IHT would be due on that

so..basically you're wrong

I was surprised at how much IHT her estate paid, given that she was in the position to command the best advice.

I think Princess Margaret's children paid a lot as well. Have doubts about the QM though - she was overdrawn to the hilt, so nothing to pay it on?

I think IHT is the fairest of all the taxes we pay.

We only pay it on money we didn't earn ourselves. Inheritance is a windfall.

I would much much rather pay higher inheritance tax and lower income tax.

Scaryteacher said "I think the estate of the late Princess of Wales paid an humungous amount of IHT"

Which makes my point that the tax tends to be paid by the young and the ill prepared, rather than the older person who plans for their death.

It's a tax on your belief in your own immortality!

Ninna

The estate of anyone (UK domiciled) who owns assets when they die over the IHT threshhold will pay inheritance tax unless the deceased left it all to their spouse or another exempt beneficiary (such as a charity).

If they have given assets to a trust so that they only own assets below the IHT threshold, then they are no longer a 'very rich person' because they have given the assets away. They could similarly have given the assets to someone outright (ie not in trust).

If someone creates a trust in their will, the estate still pays IHT before the money goes into a trust.

As you say, it is difficult for someone whose main asset is a house to reduce their estate, because they still want to live in the house. This applies to the rich as well as to the middle incomed.

I think IHT is the most unfair of all the taxes we pay.

You get taxed on your earnings.
You get taxed on your spending.
You get taxed when you buy a property.
You get taxed when you sell a property.
Which you buy with money you have already been taxed on.

Then when you die your family have to pay tax for the privalige of you dying.

How does that make sence in anyones head????

Also the rich have to pay the same as the poor except they are in a better position to know the rules and the backdoors and they utilise that knowledge very carefully.
That is probably why they are rich in the first place!

Oh and very good accountants who read those massive books on tax laws.

The really rich usually don't pay any taxes at all.

Google 'non dom' or Zac Goldsmith.

Duh.