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.

Sorry to use you as an example Johnogroats, but your post just threw up a question.

If the worst should happen and you and your DH died together in an accident, how would it work with inheritence.

Ie, you have this husband/wife allowance doubling, which would mean that if one of you inherited from the other, no tax would be due, as the allowance is £650k (for argument's sake, you have no significant assets other than the equity in your house).

But if you both died at the same time, would the allowance still be £650k, or would it then be £325k, as it is no longer a husband-wife transfer (or vice versa)?

My grandmother's cottage. Her mother worked that cottage garden. My Grandmother worked that cottage garden. Now my mother grows and maintains it. She's passed the cottage into my ownership more than 7 years ago, and I intend to pass the cottage on to my daughter. By which point 5 generations of effort will have gone into that garden.
How much should the tax man take?

Inheritance tax rarely affects cash. It usually impacts upon land.

Just out of curiosity Polyethyl are those five generations you talk of all only children?

Well, Polyethyl, depends how much it is worth.

When you've got cottages selling for £780,000 like this:

www.rightmove.co.uk/property-for-sale/property-43300672.html

then I'm afraid it is more equitable for that to be (partly) redistributed through the tax system than to keep it in the same family through mere accident of birth, because at those prices it is literally impossible for normal people to move there now. Taxation does have a role in disrupting that unhealthy perpetuation of privilege (and yes, a 2-bedroom labourer's cottage in Wimbledon, does, in 2014, constitute privilege). If you do nothing, then that just gets worse and worse.

BTW, it's simply not true that VAT applies only to luxuries. Clothes, bedding, petrol, are not luxuries.

The 'cottage' in that link is just a two bed terraced house! Why on earth shouldn't it stay through five generations?

People still need somewhere to love, despite the four generations above them having lived in the same property, so what difference does it make?

The price tag attached to it is irrelevant until it is sold, it could be worth £50k or £5m, it's still just a two up two down that has been nicely decorated.

It's not the fault of the owners that the area they live in has seen house prices go through the roof. I don't see the sense in turfing out one family to take tax money so that another family can get a mortgage and live there instead, leaving the first family with high rent or a high mortgage just so they can live in the area their family has been in for generations.

It's not wealth in a situation like Polyethels, it's a roof over their heads.

the problem with IH is you cannot stop people giving money away.

Kendod - some generations yes, some generations - no

Actually you can tax the gifts, if they die within 7 years

And people don't want to give money away, they like taking it to their grave

Polyethels did the other siblings get anything? If you have another child (I'm assuming you just have one) will you still leave the house just to your daughter?

^It's not only the very wealthy that are affected by this, there are plenty of average families affected by it. ^

Bullshit. IHT affects 6% of estates. Six. Per. Cent.

If your estate is subject to IHT, then you are not 'average' by any stretch of the imagination.

Also I have to say I think family homes and farms handed down through the generations can really become millstones around peoples necks, having the money (even if some of it's taxed) is much more liberating and useful. Take for example the cottage Polyethels mentions, suppose her daughter doesn't want to live in it, it's not near where she works or something, what does she do then? Can she sell it knowing she's selling five generations of family history with it? I wouldn't want to place that burden of expectation on my children.

In fact I would sell it as soon as my mum died so my daughter didn't have to deal with it and the guilt that might accompany it.

if you have a lot of money you need to give it away in chunks as you get older.

if you died after gifting you generally pay much less than IHT so it still works in your favour.

surely the 6% figure is misleading as many people will be leaving their estate to their spouse so different rules apply.

TraceyTrickster, I don't understand this part of your post: Oh and you cannot undervalue to make a quick sale- tax is at the government valuation. - why does that stop you from putting the house for sale at a lower price? Sure, you'd lose out on some money because you'd still be paying IHT as if it had sold for more, but if you really in danger of going bankrupt, I would have thought that losing a little on your unearned inheritance would be preferable.

Ilkley, if two people die at the same time and it cannot be determined which died first, it is assumed that the older one did. So the double band is still available.

"Oh and you cannot undervalue to make a quick sale- tax is at the government valuation."

I think provided it's an arm's length transaction you can reclaim overpaid tax if house prices change.

"Who are all these people who feel so entitled to get money when their family members die?"

One of them was a good friend of mine. In her early 40s, her long term partner and father to her 2 children died. They had been together many years but weren't married and they were living in his house.
She had to pay inheritance tax on the value of his estate, including the house she lived in with their children.

Surely it is up to the person who earned the money, to decide who is entitled to it when they die.

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.

Hopefully you have life insurance to help soften the financial blow.

I might have earned the money to lay down a vintage wine cellar - I'll still have to pay CGT on it if I sell it for an increased value.

Personally I think taxing people on unearned income (and your parents having earned it doesn't count) is a lot better than taxing people on income that they've had to work hard to earn.

The parents didn't earn it though, some houses have gone up 1000% in 20 years. That's not something they earned.

It seems to be the assumption on here that that most IHT is on unearned gains due to astronomical house price increases. Far too simplistic. For example, our property for which we have struggle to pay mortgage for 10 years is worth about 15% more than it was 9 years ago. By far the majority of the value in the property has come from capital being paid by our wages and yet we are over IHT level and if anything happened our children would have to sell up. The monies on which the IHT would be payable is on our taxed income and not on property appreciation.

But your children won't have earned the money you used to pay for the house. Getting an inheritance is always a windfall. I really don't have a problem with the beneficiaries of that having to pay out some if it in tax.

And, yes, lots of it will be unearned house price inflation for those who bought houses 40 years ago etc.

There is a simple solution to the IHT if your partner dies (especially if your house is worth enough that a 50% share is subject to IHT): marriage.

The problem with making money on a house is that if you still have to buy another house you aren't really any richer.

Leaving aside the issue of whether it is right for somebody to inherit enough money to buy a house, inheriting an £80,000 house in 1980 or the same house in 2014 for £800,000 still just enables you to buy a house of a similar value less inheritance tax.

Another problem with inheritance tax is that if you raise it people just find a way to pass on their wealth in other ways.