To not see the problem with inheritance tax

[AgaPanthers]

"Millionaire lingerie boss Michelle Mone has called for inheritance tax to be axed to stop the government spending her money when she dies."

Surely it's better than the government spending her money while she's alive? I mean they have to get their hands on people's money one way or another, and if anyone doesn't need it, it's the dead.

"I work really hard every single day - like a lot of people - for my children and for my children’s future,’ she told BBC 2’s Newsnight.
‘I want them to have that little nest for their future and for their children, and I don't see why I, others should work extremely hard, pay your tax and then when you die it is like a double whammy."

I work hard for my children too, so that they have a good education and can make the most of their talents. But I don't really see why my grandchildren, for example, would need to receive my millions (if I had any!) untaxed.

Others seem to feel the same way, giving to charity www.news.com.au/finance/work/tycoons-who-wont-give-money-to-their-children/story-e6frfm9r-1226702468883, rather than enabling several generations of progeny to be idle wasters.

For the record, the IHT rate is 40% above £325k, but for a married/civil partnered couple, the allowance is transferrable, so a married couple can leave £650k (which is 32 years labour at the average wage.) entirely tax free to their children.

If people earn a lottery win by buying a ticket, then surely people who buy a house earn the price rise by buying the house in the first place, and should therefore be able to do what they want with it.

The bedroom tax isn't a tax, so no one is being taxed on a rented home because of it. But it's true that one of the biggest arguments against it is that people shouldn't have to move out of their home and away from the area they live in, so if that's true for one group of people it should be true for everyone.

"IHT is so easy to get round though.

Just put VAT up ?"

So we tax things consumed by the poor to give the rich a tax break? Awesome plan!!!

People who are affected by IHT are not necessarily rich though.

I wouldn't have a problem with IHT if the threshold was high enough that it only applied to the genuinely rich. But it isn't.

"If people earn a lottery win by buying a ticket, then surely people who buy a house earn the price rise by buying the house in the first place, and should therefore be able to do what they want with it. "

Eh? What kind of definition of 'earning' is that? Earnings are a reward for work done. If you bought a house in London 20 years ago, then the profit is not as a result of any work you have done, it's just a capital gain because of the market being strong, outside of your control, and something that is normally taxed.

And by the way, profits on house sales are taxable unless it is your principal residence. In the case of a death, the house sale is usually NOT the inheritor's principal residence, so they are better off than usual.

Also lottery tickets are taxed, £20m tickets sold, £8m in tax paid.

If you buy your house for £100k and sell at £1m to a Chinese investor, than your £900k profit is NOT taxed.

"The bedroom tax isn't a tax, so no one is being taxed on a rented home because of it. But it's true that one of the biggest arguments against it is that people shouldn't have to move out of their home and away from the area they live in, so if that's true for one group of people it should be true for everyone."

Well I'm sorry to break it to you, but dead people do have to move away from the area they live in.

My parents recently inherited a house, it's 30 miles from them, they don't need it, it's just cash for their pension ultimately. It's not comparable to someone in a rented house being charged for an empty bedroom at all.

What happens in cases where it is a family farm. iHT on passing down would be very unfair in these circumstances especially if it is the kids home and a working farm

The main residence of the deceased should be exempt (or at least IHT payment postponed) up to a value of £2m if there are any children or dependents under 25. That would sort out the only unfairness in the system. It could work similarly to Principal Private Residence relief on CGT. Really, people should get life insurance if they have dependents but I guess it is not the fault of the children if their parents have not done so.

Beyond that, IHT should start at the very first £1 and be a flat rate applied to all. 45% seems reasonable as it is the rate at which you can be taxed on earnings and something unearned should, IMO, attract at least as much tax. Rich families cascading down wealth does nothing for social mobility and societal fairness.

Anyway ANYONE can avoid IHT - it really is easy to get around - by giving your legatee the money NOW. I find it INCREDIBLE the way people want to hang on to pots of money and don't trust their grown DC with it until they have absolutely no choice (ie they are dead). The super rich even want to control the money from beyond the grave through complicated trusts. It's daft.

Nobody should really inherit and if they do then it should be heavily taxed. I also agree that the rich don't pay IHT (driven they buy national heritage property like a Renoir then let the legatee borrow against it, invest in farmland, buy certain bonds, use international law etc etc ) and that needs to change. Everyone should pay IHT.

You're the one that said someone earned a lottery win by buying a ticket! I was just using your logic!

Dead people don't pay the tax. But living people are prevented from doing what they want with their own money.

There are special exemptions for farms and for business assets, vickibee That is partly why many rich older people suddenly become interested in farming.

DrivenFrom I think the most foolproof way to avoid IHT (or rather to defer it) is marriage/civil partnership.

That's what I believe is the best option for me now to marry my best friend and hope he will carry out my wishes to take care of my sister once I'm unable to.

Someone upthread said that there parents were separated so they wouldn't benefit from the 675k limit or whatever it is for married couples.
If you parents were still married and hadn't divorced, but separated, I think the married couple threshold is relevant.

Teeb I think that might be a good solution and I wish you could "partner" your sister and avoid it.

"The thresholds are inadequate and outdated. I pay tax on everything only to have my final funds taxed again ... Not fair. Increase the thresholds. "

Vote Conservative next year then - they propose an increase to £1m (the Lib Dems wouldn't let them have this in the current government)

AgaPanthers

VAT applies to non-essential products - luxuries, it does not apply to essentials. (Maybe it should apply to houses over 150k too)

I'm not sure it's awesome but it's pretty damn good.

But stamp duty covers houses. And VAT isn't really only on luxuries. Tampons for example!

Anyone can take out an insurance policy for the amount that the inheritance tax on their estate will be, make their children the beneficiaries of the policy and then not have to worry about their children needing to sell property to pay IHT. That's not something that's only open to the super rich with clever accountants (fair enough it's not actually avoiding the tax but it's avoiding having to sell a house to pay it)

But have you seen the prices of those insurance policies NoArman? DH and I looked into it and it would have cost several hundred pounds a month. That's a lot of money for a small chance the policy would be needed. Beyond many people's capabilities I should think.

Err, the policy pays out a certain amount whether ot not care home fees have used all the inheritance.

I wonder if all the people so determined that their parents shouldn't be subject to IT would be quite so passionate the their parents chose to leave every penny to the local cats home? Somehow I doubt it.

Not sure I follow that comment Kendodd. The exact same argument would apply - this is money belonging to deceased and same points apply - they should be allowed to give it to whoever they want without it being taxed on any monies over the current unrealistic IHT bands.

I have read all this thread and cannot see anywhere the argument that this also discourages people not to be prudent with their money etc. In the same way as some people are just "given to" by government benefits etc that those that work hard to save for a rainy day/their retirement are not this final "take" also encourages people to spend the lot (and then claim anything they can when older) which is not necessary the best thing for society.

"encourages people to spend the lot (and then claim anything they can when older) which is not necessary the best thing for society. "

I disagree - many people keep their assets in order to have a choice of care home.

And if you don't care about that, start gifting as much as possible as soon as possible. Even if you don't live for seven years, as long as you tell the recipients to save something back for IHT, no one is any worse off.

And VAT isn't really only on luxuries. Tampons for example!

<a class="break-all" href="http://www.google.co.uk/url?q=customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal%3F_nfpb%3Dtrue%26_pageLabel%3DpageLibrary_ShowContent%26id%3DHMCE_CL_000098%26propertyType%3Ddocument&sa=U&ei=wG81U9PbM5SthQfPjIGgAg&ved=0CB4QFjAA&sig2=SD9I4_QQlAtKy8kKdzYuqg&usg=AFQjCNG4Lhsj7apvg79EYw5lOaRbcLyo3Q" rel="nofollow" target="_blank">Tampons have a very reduced, 5% rate

And yes it really doesn't seem worth the bother having it at all, I agree.

But generally speaking VAT is very good as differentiating between essential and non-essential products; which is why high VAT is a progressive and helpful tax regime IMHO.

Won't get many votes, so won't happen.
That's stupidity democracy for you.

I suppose if you spent all your money in an effort to reduce your estate to below the inheritance tax threshold, it would be counterproductive in that you are likely to end up paying some VAT, so might end up paying more VAT than you would have in IHT .

I read in the Times today that 3% of estates were subject to IHT in 2011/2? (Can't link because you have to subscribe). I would expect that to mean that only those 3% were above the limit and hadn't taken measures to avoid the tax being due.

So some of the other 97% would have just been below the threshold and some would have taken on of the various avoiding actions.

When I and DB inherit my dads estate, IHT will be due...unless it all goes on care homes, which having seen what happened to my grandmother is a possibility. I am not thrilled at the idea of the money going to a care home or to hmg, but its life.

We live in London, and were we to die tomorrow, our house would have to be sold for IHT. We have a large mortgage, but given house prices, the equity is probably c 600k...so even at 10% a year, I would think DCs would struggle. They wouldn't be able to service mortgage either. It would be hideous if we died now or before they were established adults, but I don't think it would be right for them to avoid IHT.

For the record both DH and I pay a lot of tax, and given what we earn, I think that is fair, even if I don't like it.

John, if you are married, your nil rate bands cbkbe tomake a 650k limit provided each of you leaves the house to the other.

Nb - not a lawyer.

They could just ditch inheritance tax and charge everyone who benefits from an inheritance capital gains tax instead. That would pretty much stop the 'taxing me after I die' complaint.