What's the problem with Inheritance Tax?

[QuickBrown]

Inheritance tax seems to be really unpopular among certain sections of society. Obviously people always object to any taxes, but it seems to me to be the absolute least worst tax, as the dead have no use for money.

Those who object to it or know others who do, can you explain a few things to me? Firstly is the the idea of your estate being taxed once you are dead that you object to? Or is it that you are due to inherit and this will reduce their estate? Or something else?
Also where do you stand politically on other inheritance, for example are you pro-aristicracy and inherited titles?
If you are worried about your own estate being reduced before your children get it, are you someone who has given a lot to your children financially in their adult years or do you expect them to make their own way in life?
Also if you have inherited significant sums, has this swayed your thinking?
I feel a bit out of step with other people's thinking here!

Yes, this is why I think it's naive to use the argument that unearned property wealth means you deserve to have it heavily taxed.

If ALL houses have risen in value across the board, then we're all back to square one and no better off. Is anybody really well off if their purchasing power has risen dramatically at the same time as prices have risen by the same extent if not more? Only the banks really benefit from huge property prices, and the massive amounts of interest that they can charge for mortgages - in general, we the public don't really benefit at all.

To most of us, it's just 'A house' - regardless of what it cost and what it's worth on the open market.

In the UK, we pay between 60%-75% tax on every pound earner over our lifetime.

the government generates over £1.2Trillion a year through taxes. Our successive governments have done nothing to generate sovereign investments that return profit for reinvestment in order to lower the tax burden of its citizens.

so for many people having any portion of assets and savings on 25% of every pound, it is completely immoral for the government to then take a final swipe and reduce what can be passed down as shared wealth, in an environment where taxes are continuously increasing.

if you think this is only the ‘super rich’ then you’re wrong. The entire Uk tax system is not fit for purpose and it’s those battling for any kind of private assets or savings that are burdened the most.

Because it’s theft. If you have worked hard, paid all your taxes and own your own home then it’s stealing. As someone else said, I want to give my property and my money to my own children not the state.

Andy Burnham is another clueless waste of space. He might have a good grassroots understanding of issues and how government works but if he plays Robin Hood without focusing on growing the economy he’s going to be out on his arse at the next GE. The sooner the better. His whole let’s work together show is a total sham that ignores a huge proportion of the electorate.

This is a bit unfair. Responsible people will help their children out but want to retain enough to live on and pay for their care home fees should they need to rather than let the taxpayers keep them.
FWIIW, I agree with IHT but we are trying to reduce ours by having lots of holidays and giving our children and grandchildren some money now.

I don’t think Andy Burnham is playing Robin Hood with the 10% ‘death tax’. It’s a regressive tax and, I would have thought, goes against his own principles. It taxes the poor at the same flat rate as the rich, and if it also abolishes IHT (which it seems like it would) the middle/ upper classes will be enormously advantaged by it. It would be very advantageous for me if it was brought in, but I’m puzzled as to why a labour government would bring in something like this. It would seem fairer to me to raise the threshold and tax large estates more aggressively but then those large estates will just pay to avoid it.

There is a real risk if you choose to give away your assets and later need care that the government will try to claim back those gifts from the beneficiaries to pay for your care claiming intentional deprivation of assets. So it’s not necessarily a free choice to make under the current rules.

Your children, or whom ever else you choose to leave your estate to, have done absolutely nothing towards that inheritance. It doesn’t belong to them until probate has been settled, and that can’t be done until any IHT due is paid. What they inherit is the residue. The value of your house will most likely have risen significantly over the time you have owned it - much of it down to factors beyond your control. The taxman - or woman - is not stealing anything from your inheritors. If your estate is large enough to have to pay some IHT, then you’re pretty well off. Most people don’t pay IHT,

I’ve had to pay it on two inheritances and winced both times. But, you have to just do it.

Your last comment is not true if you live in London or the SE. The threshold should have increased every year like it did for the 23 years prior to 2009. It makes no sense they stopped it. Where I live 3-4 bed terraces sell for well over £1m.

Agree. It doesn’t seem like a labour policy. My beneficiaries would be considerably better off with the 10% flat rate.

Agree. Threshold has been frozen for too long and the nil rate residence banding is not applicable if you don’t have direct descendants which is completely unfair as tax is due on anything over £325k

What are you talking about?

I think your point 2 is the bit that was not clicking in my brain. If you look at a societal level taxing an unearned windfall makes total sense. People who see your only responsibility being to your own family see it differently.

There would be one practical issue with that, which is that currently if it's obvious an estate is going to be nowhere near the IHT level the executors don't need to worry about getting the contents of the house professionally valued. We have just cleared my mother's house (she is still with us but in a nursing home so the house is being sold). The contents are absolutely worthless. Nobody is going to pay out anything to buy a decades-old sofa that doesn't meet current fire regs, nor for her clothes, nor for just about anything else that was in the house. There was (sadly) no unrecognised Rembrandt in the loft. If we'd been doing this after her death under your system we'd have had to get a professional person in to confirm that there was no value to the contents at all.

Much easier dealing with a house, money in the bank, shares etc because the valuation is simple to do and can be easily verified.

its a further tax on your tax-paid-at-purchase investments, because the government has no sovereign assets of its own like many many other countries do. It cannot generate its own economic income or growth and so they claim income from its citizens.

And they do it irrespective of whether its citizens are achieving any economic growth whatsoever. Hence where we are today.

You do realise that for many estates whether IHT is levied or not, it is mainly just a house with its contents (old sofas and clothes etc) and barely any cash - there’s a reason that probate loans exist.

Yes, I do realise that, but if IHT were to be levied on every single estate the estate of someone who dies in a rented property would be subject to it just the same as someone who died owning a house. That's what I was thinking of.

I'm thinking back to the rented house of an elderly poor-as-a-church-mouse but highly regarded musician I cleared. He was a neighbour and had taught our children piano and none of his children were willing to do the clearing as they'd fallen out.

I doubt there was more than perhaps a very low four-figure sum's worth in furniture, books, a few pianos and some music and silver. It took days and days of our time to sort through.

FWIW I’d be surprised if they pushed on with this 10% idea. A sliding scale or more thresholds would be more likely (e.g. 10% on 100k, 20% on 200k) similar to income tax.

BUT if they did, I would imagine there will still be some kind of minimum. Like, if your estate is worth less than 5k then no tax. As presumably this would just be personal possessions and a car etc, so not worth taxing (or not worth the effort of having to file the IHT return)

Yes, I agree. For small sums it’s not worth the paperwork and an unnecessary expense for people who feel unable to complete the paperwork themselves.

As someone who is going to have to pay IHT by virtue of my parents living in London and also having to work on IHT. It's unpopular for several reasons:

1. It disproportionately effects London and the South East.

2. It's an insensitive POS tax. Not only do you have to pay for burial of your family which on average is 10K but you also have to pay 40% on their estate within 6 months of their death. Whilst mourning.

3. Leading on from point 2. Most people don't have a spare 100K+ lying around casually. So typically debt needs to be taken out or property needs to be sold in order to get said inheritance which typically then needs to be sold off in order to pay the debts. It's a catch 22 that even HMRC are struggling with finding a solution for.

4. The nil rate bands. The nil rate bands are notoriously out of date. The standard NRB is £325,000 and has remained that amount since 2009. In 2017 an increase of £175,000 applied if you had a residence that was passed to direct descendants and again hasn't moved since then meaning every year more and more people are dragged into paying IHT.

5. Pensions are now subject to IHT. Imagine when you save up so you can have a decent life and not have to live off the state. Well you better spend all that because now the government gets 40% of that shit. This is recent change coming into play next year (nice work Rachel) but dear god is it painful. Previously you would be taxed on any income drawn from unused pensions that were inherited and not the pension pot itself. Now those unused pensions are added to the death estate using up the NRB as mentioned above and incurring a 40% tax.

6. Da rules. The rules of IHT and gifting to most are horrendously difficult to navigate. What's exempt, what's taxable, what to gift, when to gift it etc. There's a common myth if you leave things in a trust you pay no tax, yeah no chance babe. Since there's so many rules and moving parts it makes it incredibly hard to budget for. It also means that a lot of people get slapped with penalties and fines because they missed something unless they get an accountant to deal with it.

7. Inheritance is sometimes the ONLY chance some people get for financial freedom or getting on the property ladder. With more and more people struggling to make ends meet adding IHT really snatches away the last possibility of some people ever being able to breath easy especially when you have to split the remainder of the estate amongst siblings. It's why the idea of 'The Great Wealth Transfer' is just a hollow idea to many.

IHT will NEVER be gotten rid of. It may be rebranded but they will NEVER get rid of it. It's too much of a money maker in the tax year 24/25 it brought in 8.2 billion (an increase of 11%) that's generated from 4% of death estates.

It's going to affect a lot more people from next April once unused pension pots are included. Then there's fiscal drag combined with house price inflation that will pull more and more estates into the net.

It won't be long until most home owners with a defined contribution pensions pot would be subject to IHT if they die in middle age. Most will live longer and reduce their pension pot through spending in retirement.

But, the reality is it will be something that affects the behaviour of many people. I think we will see a lot more gifting during people's lifetimes. Also, more fancy cars and holidays instead of leaving a nest egg for children and grandchildren. Not necessarily a bad thing of course.

Wrong thread.

PPs who are worried that their children will be homeless because of IHT should look into Life insurance for inheritance tax planning.

No issue with IHT but I do think the exemptions, allowances, rates and whether these apply to the estate or the beneficiaries need to be looked at.

As someone who won't be effected by it I can see issues.

The person who has worked hard and saved all their life pays whereas the person who has been money in, money out doesn't pay anything. I can't see much help for that, but it does seem unfair.

The people who are effected by it are the inheritors not the person who has died. So if you're one of three you get relatively less than the person who is an only child.

If you look at it like that.
As an only inheritor you get taxed after £325k
As two joint inheritors you get taxed at £162.5k each
As three inheritors it's £108.3k each
As four inheritors tax kicks in at £81.25k each

So it feels that you get taxed at a lower level, which is what feels unfair.

I think there's also an aspect that when it was introduced, £325k seemed out of reach to most "ordinary" people.
And it goes from 0 to 40%, so I think banding would make people feel it was more fair.
So 10% over £325k
20% over £500k
30% over £1million
40% over £2 million

Or similar would feel more fair.