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!

The biggest benefit bill is state pensions, so am assuming you no longer want those to be funded?

I don’t think there is anything wrong with taxing inheritance, the issue is double taxation. If you’ve already paid tax why should the government take more on death. I’ve said before on here I think CGT should apply to all assets on death. It’s only untaxed wealth that will be taxed that way. And I would have little to no nil rate band.

But people who have bought houses and now have a lot of untaxed wealth in him think they should be able to pass that wealth on tax free.

But if we’re sticking with the current system the nil rate band was last increased in 2009. It’s no longer just a tax for the wealthy.

But people who have bought houses and now have a lot of untaxed wealth in him think they should be able to pass that wealth on tax free.

Exactly. While maintaining that money will be taxed twice. Make it make sense.

A lot of us who are above IHT threshold don't have all our assets in property inflation though. My house hasn't increased in value much, it's all paid out earned income, the same as savings and investments. So no way I'm giving this to state.
I'd much rather my kids have jolly good time.

Give your money away while you’re alive, survive 7 years. Job done. You’ll need pay CGT on any profit you’ve made on it but this is a much more favourable regime than IHT.

That's the plan, but you can surely see the issues? People have kids at older age, especially the wealthier ones, so you need to transfer early to be on a safe side. It's not good for kids to receive this wealth when younger. And then how much to transfer and how much to leave to live on?

Since Labour included pensions in estate, my plan is to transfer most as soon as kids turn 18 and if I need to go on benefits later, then so be it. I won't have full state pension.
This didn't have to be like this if not this stupid taxation.

Someone can believe in state benefits, whilst also believing current IHT rules are unfair.

You must have bought your house pretty recently then. UK house prices have increased by 95% in the last 20 years, 130% in London. That’s a hell of a lot of untaxed profit.

I can see the issues. But remember I’m an advocate for CGT on all estates. I don’t think you should be taxed twice, I don’t think you should “have to” pass wealth on while you’re still alive. But that’s very different from saying there should be no tax on inheritance at all.

Ours is from earned income too. We bought our first house in 2000. Think we are probably an anomaly though.
edit - 2020!

That’s called cutting your nose off to spite your face. Just spend your pension as it was intended.

Exactly! Your pension was intended to support you through retirement not as a way of avoiding IHT.

UK is one of a very few OECD countries which have IHT, and to the best of my knowledge not a single one has 40% rate.
I agree with CGT on all assets, I would be happy with 5-10% on the entire estate rather than current 40% over a very small (in context of SE housing at least) threshold.

If they did this, it would remove the need for estate planning hence those who currently make significant effort would rather pay, and increase tax base, so there would be more tax taken overall. This would also stop assets hoarding. Right now they hit the same group of who have something but not rich enough to be able to avoid it.

It’s an outlier in taxing the estate rather than the beneficiary too.

Its hoarding if two children inherit more than half a flat each in London, but not hoarding if a parent leaves a house each for two children in another area. https://www.gov.uk/government/news/uk-house-price-index-for-april-2026

But 6 of the G7 countries have IHT. Only Canada imposes CGT on estates.

In principle I do not have a massive deal with it. Though I would prefer it set much lower.

The issue I have is that Labour will no doubt continue to piss the money up the wall.

A very quick example:

• Germany - IHT brackets for Class I relatives (Spouses, Children, adopted children, and step-children, Grandchildren, Parents and grandparents)

Prime residence is exempt from estate, for the rest it's:

assets over 75k - 7%
75-300k - 11%
300k - 600k - 15%
600k-6m - 19%
6m-13m - 23%
over 26m - 30%

Quite a difference to what we have here, right?

I bought a house in the NE in 2003 for £153K. I sold it 15 years later for £165K so an increase of 8%. Prices in the NE didn't recover after the 2008 crash until Covid. According to Zoopla (and we can all agree that is not very reliable) our current house is worth 27% more than we paid 8 years ago. Average house prices are massively impacted by London, according to Zoopla the house price increase in the last 20 years in the NE is just 39%, the lowest region in the UK. So @nearlylovemyusername might just live in the NE of England, or Scotland or another region where house prices haven't gone crazy.

Having said that she did say she had savings and investments which are hopefully at least partly in an ISA so she doesn't pay tax on her interest/gains. So again, untaxed income.

Another very quick example is France:

If there are children, they are required by law to inherit (a minimum of ) 50-75% of an estate, depending on how many there are.

Each child gets a tax free bequest of up to €100,000. After a couple of small increments, the main rates of IHT are 20% from (essentially) €100,000 to €550,000 per child, and 45% on everything above that.

In Japan the 40% rate of IHT kicks in at the equivalent of less than £90,000 after modest exemptions, and the top rate of 55% kicks in at the equivalent of approximately £2,850,000.

None of Germany, France or Japan is the UK. All have different values, customs, histories and societal needs. Cherry picking is seldom useful.

Don’t France have a system where you can gift shares in your house to your children to reduce the value you own?

In many comparators England is much more punitive than other countries. Japan is even more punitive though.

Op I’ve heard of two cases only recently where people had to sell a house and in another case a farm that their gps had had then passed on because they couldn’t afford the inheritance tax. It’s a ridiculous system where as others have said people have already paid for the house and related taxes and the people receiving it have paid their way through life too. Totally only people who can pay it are people rich enough to buy it in the first place. So sad

Agree, cherry picking is seldom useful.

France:
French inheritance law and estate taxes | Expatica
there is 100k exemption per parent per child, then incrementally increasing rate (per beneficiary)
Parents, children, and grandchildren

• Tax-free allowance: €100,000
• 5% tax up to €8,072
• 10% on €8,072–€12,109
• 15% on €12,109–€15,932
• 20% on €15,932–€552,324
• 30% on €552,324–€902,838
• 40% on €902,838–€1,805,677
• 45% over €1,805,677

So a couple with three kids can leave them 600k worth of estate with zero IHT.
Then it's 5.4m one the top of tax free 600k before 40% tax kicks in.

Japan has the highest IHT rate in the world, however, I don't have knowledge of how many estates would pay it

Estate and Inheritance Taxes around the World

Top rate US IHT is 40% as well, but it's above 15m threshold, or 30m per couple.

So we are the outliers really.
Interestingly, Sweden and Norway, frequently admired here for their just social policy and equality, abolished IHT altogether.

Interesting Germany have a section for adopted children, as I was musing this as a way to increase numbers of people Fostering and Adopting. If you said you would get a 20% reduction in total IHT per adopted child if they live with you for over 5 years (spitballing) and you have to leave them at least £20k you might get a few more millionaires interested in helping out kids. Considering each kid in care apparently costs £300k pa it would be well worth it.

I get your point, but I don't think it's a good idea to use children who need adoption as a financial incentive. Adoption should come from love, not desire to reduce your tax to give your own kids more. I'm saying this as someone with passionate hate of IHT

I know and it is a risk but people are worried about the cost of living when it comes to adopting, so this would balance their thinking of the risks a little more. I think adoption is fraught with risks but people who can afford to might need a nudge to consider it. Most people factor financials into planning children.