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!

This is exactly how my dh feels and the reason we will have to leave the country within the next few years.

I don't understand it either.

By the time someone gets an inheritance they are usually late 50's or 60's and already paid off their house and has a bit of spare cash. Also, they didn't earn it, so why are they entitled to it TBH. It's a big gift.

I think they should tax peoples estates more, and everyone should pay it, not just the rich. So if you die, and your house is worth 100K or you have £6K in your bank, you should still pay the same % as everyone else. It's only fair.

I have no issue with a 10% across the board IHT, and removing the loopholes so that huge sums can't be put 'in trust' to avoid IHT.

Because it's always the middle class who play by the rules that get shafted, not the super rich or the feckless.

Work hard your whole life. Have only the children you can afford. Pay your taxes. Contribute to society. Then, if you need care in old age, watch everything you've worked for disappear. And if there's anything left to pass on to your children, it gets taxed again.

It makes you wonder what the point is. Especially when it feels like we live under the constant threat of yet another tax rise, but there’s no reform to make anything more efficient. Yes, most people won’t be affected by IHT, but it’s the principle.

I also find the thought of the inheritance tax I’ll pay on my dads estate far less annoying than the stamp duty I’m due to pay on my house when I move hopefully within the next few months. I’ve had to earn and save up that money, on top of the extra I’ll need for moving costs. Only receiving £330k instead of £350k when he dies will be far less upsetting even though it is overall a larger amount of tax paid.

@Disappointedlamathe vast majority won’t be impacted by IHT. My parents and in-laws will be due to London property that has soared in value vs when they bought it. Why shouldn’t I pay tax on that windfall?

@modgepodgeYes stamp duty annoys me because it makes moving so expensive.

For me, it's that money is taxed so many times! You pay tax when you earn, tax when you spend, tax when you save, tax when you buy a house; now there's going to be tax on your pension. Not much left of the pound you worked for. Tax when you die just seems the last straw!

Why are we forcing women to marry just to pass on their home to their child though? Our house has been subject to IHT 3 times already.

If tax revenues were being seen to be spent sensibly and fairly, I don’t think these attitudes to tax would prevail.

But when we have to witness billions being spaffed up the wall on things like HS2 and paying the French to do fuck all on the border, it starts to grate a bit.

The money in IHT pots will already have been taxed when earned then interest on the savings and withdrawals from pensions within the pot will have been taxed as a second layer of taxation. In my case inherited money which was already taxed twice as above was also taxed at 40% when it came to me as a third layer of taxation. I'm fine with all that. I then pay 4th layer taxes on any interest growth Within my savings only for my estate and family to owe 40% when I go. No wonder people get creative to reduce the impact. I've already started and will continue giving away as much as possible as I age and have already put funds in trust to ring fence them.

So in the case of a family home where adult children still live at home for whatever reason, they would either have to find/borrow 10% of the value of that house to stay in their home, or otherwise be turfed out of their home... all as punishment for having lost their loved one - however young they are when their parents die.

If it's genuinely about taxing unearned gains, then tax the increase in value, like capital gains, rather than taxing the entire estate. That would distinguish between someone who bought a house for £100k that's now worth £1m and someone who simply saved and paid tax all their life. Inheritance tax as it stands is a tax on assets that have often already been taxed multiple times.

I don’t have a massive issue with IHT as such, I do have an issue with the way it has to be paid… so if there’s a house involved that takes it over the threshold, you’d potentially be liable for the IHT before the house is sold.

From our perspective, we wouldn’t have the money for that… but we would obviously be fine to pay it if it was taken when the house sale was completed. I don’t think it is necessarily fair to potentially make people take loans etc. to pay a tax, even if they will eventually have the money to cover it. Also sometimes probate can take so long…

Maybe a fairer system is that people inherit and then are taxed when all the inheritance is received?

Or the flat 10% across the board but with an allowance for delayed payments if there are reasons that the house can’t be sold immediately. And I agree about some kind of safety net for younger adults / kids inheriting… our life insurances would pay off our mortgage and give them some money, but if they were then taxed on the house, they’d lose most of that safety net,

I’m always genuinely baffled in these debates when it’s implied people will get next to nothing. Is £500,000 tax free not enough? It seems like a big pile of money to me.

@ParsleySageToiletDuckAndBinBags

But how is that different for families who have to pay 40% now?

No different to now if children living in a £1m+ house’s parents die, they will have to find the money to pay the tax bill.

I know a family of young adults where precisely this happened - house in London, had to be sold to pay inheritance tax. None of them owned their own homes, they had all lived with their parents, one was still actually at school when the parent died.

This is what needs changing. There are circumstances where the IHT amount can’t be raised if the estate is all property and no cash. A charge against the property at a future date eg, when it leaves the immediate family would be more fair.

@Disappointedlamabut capital gains would be higher wouldn’t it for today’s older generations so there would be outrage?

The real issue is offshore accounts, see the panama papers, but of course we can't sort that out so raiding the working and middle classes who can't afford to hide their money has become the only way to raise taxes in UK.

She won't unless your house is worth loads of money.
If her parents are both together, she is allowed a tax free allowance from both parents once you have both died, as well as the tax free allowance for herself. This money combined comes to a million pounds, so she can inherit a million's worth of assets before paying any inheritance tax. It's different rules for children.

In Norway they have much higher taxes during their working lives though.

The real issue is that a lot of people alive today have not been taxed highly enough during their working lives in order for the benefits they will receive in old age and the other money that the country has spent on infrastructure or defence during their lifetimes.

The country has also maxed out its lending capability on things like covid, so it is not possible for politicians to take the previous easy route by simply borrowing money.

So the country needs more money from somewhere. It can get this from

a) Taxing workers. The problem is that there is a relatively small proportion of workers and they are getting increasingly taxed out.

b) Reducing spending. This is difficult as there is an increasing amount needed to be spent on infrastructure, net zero and defence. Benefits such as pensions adult social care are at high levels due to demographics.

c) Taxing "the rich". Everyone seems to get on board with taxing the rich. There are three problems with this. Firstly the rich are mobile and can leave, secondly they can employ armies of accountants to avoid taxes and thirdly eveyone seems to be happy taxing "the rich" until they find out that they are actually "the rich" at which point their ideas on taxing them seem to take an abrupt about turn.

d) Growth.

I think inheritance tax in general is a good thing for a number of reasons. Firstly, it taxes those that have most benefited from the underpayment of taxes. Secondly it taxes those that are in general rich. Thirdly it taxes them at a point in their life where they no longer need the money and finally it helps level the playing field with people who do not get an inheritance and thus makes life more equitable (IMO).

In general I think the country does need more money, and it can only really get that money through either growth of the economy or taxation. If it is to get that money from taxation then the middle class are the only sector that can really come up with the amount of tax necessary to make a difference.

Inheritance tax as a tax is a bit of a mess, because many people avoid it. Loopholes need to be closed in order to stop this avoidance.

I’m just not sure that I consider a couple who have over £1 million of assets to be working class.

I get the principle if you are talking out a 1m mortgage and paying a lot of stamp duty then you don’t have unearned gains. How many people does that actually apply to though? A lot of 1m plus home sales are driven by equity gains

I don't object in principle, although 40% is steep, 20-25% feels more reasonable. Regardless, the recipients will have a decent chunk of money leftover they didn't otherwise expect.

If DH and I died now, our DC would have to pay IHT as we are early retirement and therefore our estate is probably the largest it has ever been and will ever be, I am ok with that. If all goes swimmingly and we live another 30 years or so, we may well have spent most of our pension pots and savings and potentially some of the house value, and we would be under the (current) threshold again. I am ok with that too!