The really rich don't pay inheritance tax

Incidentally, I think the estate of the late Princess of Wales paid an humungous amount of IHT, so your argument OP isn't accurate.

Ninna - trusts have many many non-tax reasons behind their use. It enables a giver to give to a person who may not be able to manage the money sensibly.

For example, you may wish to give money to a relative, but be reluctant to, because they are too young, too old, have a mental illness, have an abusive partner, or are spendthrift and wish to be protected.

A trust allows you to do this, because the trustees and not the beneficiary have control of the money, but it has to be used for the beneficiary.

Since 2006, anyone putting money into a trust in excess of the nil rate band for IHT (or cumulatively in excess looking at the past 7 years) has to pay a 20% tax up front. In addition the trust pays tax every 10 years.

Contrast this with an outright gift to an individual, where if the giver lives 7 years there is not tax to pay.

Therefore trusts do not automatically reduce inheritance tax.

The rich can reduce the amount of money they die with, because they have plenty of liquid assets to give away. Trusts are really a red herring in terms of IHT saving - they possibly make a person more likely to give away something because they know it will be spent 'properly', but they are a very useful way of, for example, allowing someone with two children, one of whom may be mentally ill/have a controlling partner, and the other not, to give to both of them equally.

Do you have a particular scenario that you are concerned about? I really wouldn't believe all you hear on the radio about inheritance tax.

I wish the name Community Charge had stuck though, just because of the Monopoly connection ;)

mmrsceptic - no the poll tax was a fixed amount , a flat tax is usually used to mean a fixed percentage.

The easiest way to avoid IHT is to spend it so you are below the limit for IHT when you pop off.

I hope to leave something to my ds, but I won't be going without heating or living on baked beans to achieve that.

I don't think that the statement that only the rich can avoid IHT is true either. Everyone can as has been pointed out avoid it by tax planning; the info is there on how to do it, and a solicitor can do it for you at very little cost.

You also have to consider how IHT works. AFAIK, you have to pay the IHT before you get probate, but you can't sell the property until probate is granted, so it is a vicious cycle.

Yes, the government benefits from IHT, but so would the general economy if it was scrapped, or the exemption levels raised, as a capital sum might take people off benefits; give them more to put into the economy etc.

I also don't agree that not working means one is economically inactive. I work at times, (SAHM the rest) but don't earn enough to pay tax, but as a family we are economically active. One has to spend money to eat, drive, clothe oneself, buy books etc. That surely counts as economic activity in that money is being spent within the wider economy?

A flat tax? You mean like the poll tax?

flyingcloud - I don't think it is unreasonable to exploit a system for your best advantage while at the same time saying the system should be changed to prevent you from doing so. You have to work within the framework that exists at the time.

Tax would be much more palatable if it was less obfuscated and complicated. I think a flat tax is the right starting point, but not the end point.

Start off with a flat tax on ALL income (Capital Gains, Inheritance, Pension EVERYTHING) - work out the level on how much money the state needs. No other Tax of any sort.

Then make your arguments for using it to incentivise behaviours or outcomes you want.

Want to tax cigarettes? Say what change you want to see as a result and how you are going to measure it.

Think that a tax break on Capital Gains will help the economy by encouraging people to start businesses? Say how you are going to measure it and what you are going to do if it doesn't work.

Think a progressive tax system will reduce the burden on the less wealthy members of society? Say how you are going top measure it.

Yes well anybody who scrimps and saves, who prepares for a rainy day, is penalised. I hate that. I really, really hate that.

I am definitely not in favour of inheritance tax.

I'm not a big fan of this sodding country taxing us on everything either!

IPT Insurance Premium Tax...........so you are sensible and plan for certain eventualities then you pay a percentage in tax!!! For what???? Fireman to go on "diversity" courses!!! It's true.....and a waste of money, OUR money!

Capital Gains tax......for having the balls to take a risk in business or on an investment. For what?? To pay the salaries of the made up jobs section in the Guardian.

No reason for considering it brings down the tone - perfectly valid concern and argument.

It is probably totally specious but I suppose one might see people being in favour of people having / earning more than themselves being the ones who are "getting away with it" and should be taxed.

Every where I go on MN people are pro inheritance tax so I am surprised to see people here who have set up trusts to avoid it.

I have often thought (rather dim observation coming up) that inheritance tax can be particularly harsh on the agricultural sector, as those often are larger properties, farms, etc that are passed from one generation to the next. People rarely go in to farming, they are usually born into it and I think it is important to protect farming and agriculture as much as possible.

Excuse me if I am bring the tone of the debate down!

Hmrc are barbaric, and clueless about their own rules.

jackstarbright/mmrsceptic - I agree with your posts on young children and trusts. When we set up out trusts for our chldren they we age 2 and 4 and both me and DW were or had been every ill. I think it should be automatic on accidental death of parents with very young children that it is not levied.

In fact, I think it is quite barbaric that the HMRC would think it right to ever deprive the grieving children (and elderly relatives) of the money they need to be brought up on.

How awful jackstar. What a terrible story must be behind that.

agree.. also if you have 53pc of the economy publicly funded it probably makes up for the forty per cent yr public sector employee does pay -- ie all those people who are basically paid by the public sector though not employed by it

OK, see where you are coming from, insofar as what taxes are paid from public sector originally came into funding them from private sector. (and why I suggested some awkward maths as an economy entirely dependent on public sector would fail)

Perhaps one reason past communist systems, and the current handling in N Korea, leave most people in poverty and the only real "income" is from tourism or overseas trade. Both being difficult if you close off your borders and/or have few resources to exploit.

yes, sure, but they don't pay all their salary over

that's what i mean by "they can't pay for themselves"

what would it be -- they on average pay maybe forty per cent of what they cost?

I do sadly know a family where this happened. My understanding is, that the inland revenue eventually agreed to apply the tax as if the parents had set up trusts, and the dc's stayed in their home. However, it was very stressful and uncertain for them at a time of profound grief.

ms "They don't pay for themselves, they can't possibly. It's private sector money that pays for it all."

So are you suggesting those working in public sector don't pay any VAT, capital gains tax, stamp duty, NI, income tax (and anything I've missed). Anyone on a payroll with annual P60 printed alongside their regular salary details is paying into the tax system, so part of what is earned by 100% of those in employment goes into the tax system, including money from the public sector workers to "pay for themselves".

Probably some awkward maths could be involved if it wasn't in the low 20s% (because if public vs private numbers went up too much we'd reach a stage where funding would all fall apart).

Thanks Jack. That is EXACTLY our situation. Loss of parents compounded by loss of home -- horrific. That's what we want to avoid. I agree with you Bramshott.

This is not a popular view (and probably doesn't sit very well with my left-wing principles!) but I think that where there is a genuine desire to pass a house or other property down through the family as a home to be lived in, rather than an asset, it should be possible to do that with no inheritance tax being payable unless the property is sold. I think that's what a lot of people are trying to achieve through setting up a family trust.

We have done a trust - just to ensure we maximise both dh and my inheritance tax allowance. We did it when we realised that if we both died suddenly our dc's would have to sell the family home to pay the inheritance tax. Our wish would be for them to continue to live in their own home - looked after by a relative. We also had to increase our life insurance (to cover the remaining inheritance tax). We live in a semi - not a mansion (but live in an area with high housing costs).

Imo - inheritance tax hits the younger and Ill prepared rather than the older person who can plan how to minimise it.

Mmrsceptic - I'd advise a soliciter.

yes thanks would be tremendously grateful really! we just made our wills by ourselves without solicitor (abroad) so we need to regularise things

hmm how can we exercise that contact

i think i still have a vaguely anonymous email account

unless you could do it on here? would he mind?