Does anyone else think that having to pay tax after you are dead is quite a nice ‘problem’ to have.

[Daisydurrbridge]

I am like most people and will never have the ‘problem’ of paying inheritance tax. So many people are fussing and fretting about this tax without a true understanding of the terms under which it will have to be paid.

In my working life, I often had customers complaining about interest rate falls because they had to live on that money. I am not referring to ordinary people but those who needed wealth management advice. The thought that they could spend some of their capital filled them with dread. Only having three cruises a year type of worry.

Once when we were at dinner with friends they were discussing their parents and they remarked a time when they were really quite poor and had to live on their capital. When I said “quite poor” means having no capital they could not comprehend it.

i wonder if I am so out of step.

No this is nonsense.

My DD will probably pay IHT and now on pensions.. but lets face it, she'll have 500k tax free and 60% of the reminder... she'll hardly be poor will she?

Its money she has never paid a penny of tax on herself and most of her inheritance will be property that has rocketed in value, again with no tax paid.

However, IHT should be multi banded, not a 40% cliff edge.

But she'll have to buy a house to live in too, at the inflated price.

Person A lives outside the SE. Over their lifetime, they pay off the value of their house. They die, and their 2 children share the value of that house, getting half a house each. Which they put towards their own house. They live in the same area, because they lived with their parents as young adults and met partners there. They only have to cover half the cost of a house in their lifetime. Happy glow all round.

Person B lives in the SE. Over their lifetime, they pay off the value of their house - paying proportionately much more tax for the same standard of life than A, because income tax bands don't take higher COL into account. They die and their 2 children share the value of that house, but because IHT, they only get 1/3 of a house each. Which they put towards their own house. They live in the same area, because they lived with their parents as young adults and met partners there. They have to cover 2/3 of the cost of a house in their lifetime. Plus pay much more tax for the same standard of living in their own turn. That difference is wrong.

I don't think IHT is ever reasonable. But it's absolutely not reasonable when the threshold hasn't in any way kept up with costs rising in the SE.

@strawberrybubblegum Well, assuming i live into my 80s, an average, my DD will be in her late 40s, i'd hope by then, she ll be settled in her own home... now i know thats not a given at all but either way she will still have around 700k net at todays prices.

If i was married, it would be well over £1m, even in the SE, where the average house atm is around 500k - outside of London, its still very substantial.

Plus this is assuming i do no gifting, no tax planning.

There is no point moaning about public services, care for the elderly, roads etc etc if we are not prepared to pay taxes and a lot more of them too.

If i was to put on my moaning hat, i'd say what is unfair is the allowance is double if married, imho, the allowance should be on the estate, not the persons marital status, which in todays world is antiquated.

Spot on @strawberrybubblegum . This is the point I was making earlier but you have elaborated to a better end.

@Alexandra2001 you are missing the point being made.

I think salary sacrifice should be renamed to tax saving scheme. That’s what it is. Schemes like this aren’t publicised, companies have to get them approved. People often say well what’s an ISA - well that’s an example of a scheme that is described and upfront and available to anyone who wishes to use it

Just imagine if the lowest paid perhaps on benefits could effectively falsify their salary to keep within a certain benefits band. But those creeping towards higher tax bands virtue of their high ( no doubt well earned in most cases or who have chosen typically higher pay careers) can keep within lower tax band by “sacrificing” a portion of their salary. And sacrifice? No, it’s a salary tax saving benefit scheme as the beneficiary of this sacrifice is the individual, and the employer. The state is effectively sacrificing income from tax receipts to subsidise these schemes. I wonder how much this comes to.

Ive read threads in here where people about to hit higher bands just stick a load in their pension ( or whatever their employer scheme covers - it’s not always just pension AFAIK) and hey presto you can now use this pretend scheme for your salary and thus stay within a lower tax band

I am surprised this is rarely raised or discussed. Perhaps it’s because so many people benefit or those who would lose it would be vociferous objectors. And I think perhaps also be available in the public sector, though I’m not sure on that one. In any case, perhaps too many of the “wrong” groups of people would be affected who knows.

For me, if these schemes continue they should be named accurately, and how you access them be as clear and transparent as, say, an ISA is.

Happy to be corrected if I’ve got any of the above facts wrong!

No i don't think i am at all.

We cannot have individual tax systems to suit a higher cost of living, i moved from a cheap area of England to the SE, worked there for many years, moved away from the SE.

People are free to move to slightly cheaper areas if they wish & in our local village, we have many middle aged couples who have inherited in the SE, used the money to sell up and move down here, with a very large nest egg to live off.

The bottom line is the children of the deceased have not paid any tax on the money they inherit.

On fairness, someone working as a carer, in the SE or anywhere else, will struggle all their lifetime, they will leave nothing for their children of substance, yet have paid tax on their meagre earnings.

Absolutely. I felt quite angry after reading some of the posts on here. My heart really doesn’t bleed to know that Zac and Emily in Guildford will ‘only’ inherit £300K each from their parents after IHT, when their late parents house was bought for a relatively small amount back in the 90s. I wonder if some of the more indignant replies are from future Zac and Emily’s worried they won’t get as much money from their parents estates as they’d like when the time comes?

I’m hoping the threshold gets lowered, so more people will have to pay IHT. I think it’s imminent - maybe there’ll be announcement will be in the next budget. RR is testing the waters so far with the pensions ‘raid’.

That's the problem though: tax bands which mean vastly different things in different parts of the country. It makes it impossible to create a system which is fair.

On fairness: the carer will have been financially supported by higher tax payers - through the state - their whole life, given that £40k income is the point at which people start paying their equal per-person share of state costs. That's fine. But it's ludicrous to suggest that it would be fairer to redistribute yet more from higher tax payers to the carer's children, to 'equalise' what they have earned for their own children.

The government doesn't exist as an income redistributor, to make sure everyone has equal amounts. The role of the government is to take taxes to run state-wide services on our behalf.

Well, that's fine - but then don't be surprised when 'Zac and Emily' realise that they can't afford houses in the SE (where they grew up and have roots) and make different life choices. Life choices which bring in far less tax revenue, which leads to ever-declining standards of living for everyone.

I'm not 'Zac and Emily' by the way. I'm thinking about this for my own DD, not myself. Hopefully in many decades time, when this will all have changed anyway.

Well, i never suggested the carer gets the same income as a higher earner....

I would argue that the carer actually does contribute more to society despite their lower salary, our parents would be screwed without them.

On redistribution, if we want carer's, then the state has to redistribute some wealth, left to their own devices, the privatised businesses would pay them a £1 ph if they could, hence the screams of anguish from employers whenever they have to pay more via the NMW.
If we want more nurses, we have to pay them more, same with teachers... thats redistribution of wealth.

The NMW requires taxes to be paid, if IHT was abolished, those billions lost would fall on someone else's shoulders, perhaps in the form of higher council tax, longer income tax threshold freezes, higher VAT... all of which hit the lower paid worker more.

Your children, should they be higher earners throughout their lives, which you imply they are or will be, will have their own properties by the time you die - in many decades time - their inheritance will be used to buy a BTL, pay off a mortgage, buy a 2nd home or buy their children a home.

If they are lower earners, then their taxes aren't enough for them to be net contributors, so it wont effect the UK tax take.

Do you think a carer contributes more to the country than a doctor? We'd all be pretty screwed without them.

Contribution to the country isn't proportional to pay, but it isn't inversely proportional either. It's weird how that has almost become a trope.

And income distribution does already happen, obviously.

I have no idea whether my DD will be a high earner a low earner, or something in between.

But I do want the UK to be run in a sustainable way, so that's still an OK place for her to live when she's an adult.

And I do want the money I've earned through my life to benefit her and her children. Whether it's to allow them to stay in the area they grew up in or have a slightly nicer life. Otherwise I may as well work less, and enjoy life a bit more with her now.

@Greywool It has always been the case that you are only taxed on your ‚Net‘ salary. There are different ways of paying into your pensions but overall the tax position is the same. If there was no tax relief on pension contributions, nobody would lock their money away for that amount of time. The tax is only deferred especially when pension come into inheritance - the tax could effectively amount to 100% if your pension loses you your residence nil rate band.

@Alexandra2001 you are still missing the point! It's about an equal playing ground for people.

So why are salary sacrifice schemes set up by some companies and promoted as win win if it’s always been possible to pay into your pension as you describe?

It's entirely appropriate and fair that tax is deferred on pension contributions. How would it be fair to be taxed as if you had an income which you don't have now. You're spreading your income across your lifetime, and when you actually get that income you'll pay tax at exactly the same rate as everyone else with the same income.

As for salary sacrifice, the additional benefit is that you don’t pay NI on that amount.

So it extends the choice to stay below a cliff-edge income threshold beyond pension (which is entirely reasonable since you've delayed that income and don't have it now) to also be possible for some other things which you are using now.

BUT, the schemes have to be approved, and are pro-social. Things like private health insurance (which saves the NHS money), or cycle-to-work (which improves health and reduces congestion, traffic pollution and road wear) or electric car schemes (when the government was trying to phase out petrol cars).

The NI saving is the cost of the government 'nudge' towards behaviour they see as beneficial.

What a bizarre scenario. If there was no inheritance tax, do you think your children would have continued to live in the family home alone, like Pippi Longstocking? If the house is worth £500k, they won't have to pay inheritance tax but they would still sell the house and move in with relatives or be put into care.

If it's worth £700k, they will have an £80k bill to pay, so the choices are:

• Take out a mortgage for £80k, if they are adults and for some reason wish to keep the house- considerably less than most people pay for a 3 bed house in any area.
• Sell it and have £310k each to put towards a deposit on a house of their own when they are ready.

With property you have up to 10 years to pay the IHT. Cash, shares etc you have to pay within 6 months of death.
I think the 6 months is too short and it should be a year to allow enough time to work through probate.

As the next poster explained, it is saving on NI and potentially reduce your income below a cliff edge. Most employers don’t save the NI as they will also put that in your pension.

@Ratisshortforratthew
So you believe IHT rate should be 100%.
That would cause a number of problems. How many people would save for their old age when the government would take everything they own? What if they had dependent children? What happens to their spouse who may need that money to live on? Why bother to buy a home if the government takes it? What would be the point is working in a harder, more demanding job?
If your inheritance was going to be larger, I imagine you'd have a different view. It's just not that straightforward, it's more more nuanced.
Every action has consequences and all pros and cons need consideration.

USA lower income tax and no IHT

Give it to them while you are alive. We have already started making gift payments from income that are not considered PETS.

The people that are paying are not the same people who have paid already. The people who are paying the tax are their heirs and therefore it is unearned income. The fact is that their parents or whoever earned the money.