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!

I think it’s a fair form of tax as it’s essentially getting money for nothing. Also, relatively few estates paying it and there are many ways of planning around it.

However, as a pp said, a lower percentage on more estates might be a better idea in this day and age.

• and too much is going out !

Presumably by the time she inherits she will no longer be living there.

My mum's house is worth around £500k. My parents had a mortgage of £20k which they paid off 30 years ago. The increase is value is due to rising house prices me. Even with interest on the mortgage payments they've not even paid £100k. And I've certainly never paid a penny towards it. So it's not been paid for by my hard earned money.

My objection to inheritance tax is that tax has already been paid in the lifetime of the person with the assets/ cash. So why should tax be claimed again?

I am all for redistributing wealth but I don’t think UK has quite got it right

The number of people saying they've worked hard and saved to pay for their house is nauseating. Fine. Keep the portion of the estate you paid for free from inheritance tax, but tax the inflation of said house that you did nothing to work for. Is that a fairer deal?

I’ll be dead so I won’t care - I’m not married so everything is going to my kids and I will try and make sure I’ve given them most of it before I die (hopefully!)

You have to have over £1m to pay IHT if a married person as your spouses share transfers to you when they die. Hence why so few estates pay any IHT even with these inflated house prices. I an divorced and most of my savings and investments have been made after my divorce, I chose to take on the mortgage for the family house so my children did not need to change schools while my ex husband kept all our married savings plus investments.

When I die, my children will pay IHT as my house is worth around £700,000 and I have decent savings, including a pension fund that I’ve not touched and some money inherited from my father. I’m now almost 70 and am making significant gifts to my family under the gifts from surplus income clause. I give then each ( children and grandchildren) £2000 for Christmas and £1000 for their birthday which I’m allowed to do however long I live as it does not affect my standard of living as long as I keep records to show that these are regular gifts. This is actually a not well known legitimate way of reducing capital according to my financial advisor.

The rules re my pension are changing in 2027 as well, thanks Rachel, when the money in the fund becomes part of my estate upon my death, it is currently exempt. So next year I will take the 25% tax free lump sum and increase the amount I gift to my family. Obviously I need to make sure I have enough to fund the rest of my years especially re any potential care costs so there will still be IHT to pay but I intend to reduce it as much as possible.

Apart from my inheritance, which I had never factored into my future planning as I thought my parents would live longer than they did, all my savings is earned income and so already been taxed twice. I knew that my pensions would not be enough to fully fund my retirement due to years as a STAH mum so saved hard once I returned to work to have savings to dip into to boost my day to day costs.

As far as I am concerned, that money is mine and apart from one charity donation so I can give it to my children.

Because it allows a reasonable amount to be passed tax free. Passing on more than the threshold is excessive and it contributes to the wealthy staying wealthy and getting further ahead of those who weren’t lucky enough to win the birth lottery.

I can see no reason why the assets and savings I have built up over my working life cannot go directly, and in full, to my children.

The good thing about IHT is that it encourages people to give it away earlier so it gets spent and supports the economy rather than people just sitting on millions for decades and then giving it to already middle aged or older children who do the same. Younger people spend more money, in general.

This bears repeating - especially this:

It’s not 40% of your assets, it’s 40% of your assets over £1 million.
Only 4% of estates pay it. It really affects very few people, and those who it does affect are the wealthiest

But again, you can't do this if the asset is the house you live in and you are a single parent on a low wage. Many people think they can do community based work as long as they have a roof over their heads, but the reality is we should all be living in shoeboxes, cheating the govt out of funding for PPE for example or maybe getting payoffs to destabilise the economy and hiding our money offshore like the people who never have to pay tax and buy their kids whatever they like. Most people paying IHT don't just have 1m in the bank, it is their house which has often already had IHT on it once or more.

A child is entitled to inherit £500k per parent before paying tax. Personal circumstances doesn't really come into it, nor does being married or anything. If married, they can claim a million from both parents at once when the last parent dies which may mean, esp in SE England they can afford to keep a house if they wish to do so. If not married, they can claim £500k twice. Those are the tax rules.

Most children are already on their way by the time parents have died and don't need to keep the house left to them. So in reality, it's little impact if their parents were abused, divorced, never married. The money stays the same and this is what I am talking about, not loads of 'what if's' because we can be here all day.

@Metalmotha it isn't taxed until you are dead and sorry to break it to you, but dead people do not need houses.

The percentage of estates taxed is higher in real terms. The tax on the first estate is just deferred until the second member of the couple dies (if married).

The speed at which tax is due and the interest (about 8%) charged on it is brutal. If a beneficiary wants to buy the property to live in or whatever, they have to pay second home stamp duty (which they can claim back after their home is sold). The upfront taxes cripple people, as often, like their parents, much of their money after tax is going on paying housing and living costs. People talk about parents giving it to children whilst they are alive as though they have large swathes of cash lying around, know exactly when they’re going to die, know for certain they won’t need a care home etc etc. The cost of housing varies hugely over the country. Like stamp duty, the thresholds don’t account for this. IHT doesn’t factor in the number of beneficiaries either.

Lots of people who die don’t have huge resources to give away whilst they are alive.

It seems to me there are a few psychological factors at work here:

1. People cannot get their heads around their own death. Once you are dead, you are dead, and don't own anything. The dead don't own property. It is not the dead being taxed, it is the living recipients. Once you are dead you won't know anything about where your money goes. The dead don't care.
2. Living recipients get a windfall, an inheritance, because they are lucky to be born into the right family. Why should people not be taxed on getting a lucky windfall that they didn't earn? This is a fundamental left-right split in the way people see society: the right tends to think of the basic unit or building block of society as being the family, so money is owned 'by the family' and should be passed down and retained in the family. The left tends to think of the basic unit of society as the individual, so each individual pays tax on what they receive, whether it came from their family or otherwise.
3. People have an idea that money should be taxed 'once only' - which is very peculiar. There is no logical reason for this 'once only' belief. You get taxed on your income (PAYE) and taxed on the same income when you spend (VAT). Then you pay NI, and if you lose your job and get some of that NI back in the form of JSA, that is taxed too. Do you think VAT, fuel duty, etc. should all be abolished because it is 'double taxing'?
4. Most inheritance is not from money earned or saved by the deceased. It is from money they inherited themselves, or rises in property prices. So it has not "hard earned". Perhaps it would be better to have capital gains tax on residential property, so that you pay a % of the rise in value every time you sell and move home.

Only the very wealthy would give it away earlier because they can afford to do so. Most people the money is tied up in property.

I know, but people just can't get past the number psychologically. Even though the vast majority of people won't inherit anything above the threshold for tax, the population are still overwhelmingly against it.

It houses, people are very emotional and irrational about housing. Hence the easily refutable taxed twice arguments. No one goes around the supermarket or wails to their plumber they are being unfairly taxed twice - but every time you pay VAT you are being taxed twice.

I agree you're taxed on your income then taxed again on any of it you manage to save or invest and then taxed on it all again at a very high rate when you die. If they do bring in a lower rate of inheritance tax at a much lower threshold a great many people will start objecting, it's easy to say it's fine until it affect you personally.

Sadly, this seems to be true.

People have an emotional reaction to inheritance tax. This is despite the fact that the vast majority benefit infinitely more from all the services that it funds and which would have to be reduced if it were to be reduced or abolished.

Yes, people are against money going to rubbish projects and funding the perks and rich lifestyles of our government!
But yeah, that's another issue.

I agree re ‘taxed twice’, but I think there would be a lot of wailing if VAT went up to 40%.

It seems to be being suggested to reduce the rate significantly and also the threshold. If they change it to 10% on estates over £100,000 would that change your mind?

Another question to ask is why gov needs more income in the form of taxes. Why has public spending gone up? Population numbers are the same. Services are worse. Indirect taxation like council tax is up. Thresholds are frozen. Public servants' salaries stagnant.
Where is this tax gonna be spent?
And who foots the bill then?