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.

Google Business Property Relief products, worried.

It's just another tax on the middle classes really. Apparently aimed at the rich but their accountants sort that out, so they don't pay. So as a system it fails to achieve its goals and impacts those who are barely comfortable, not the rich. Basically its not fit for purpose.

So how does taking money from people who have to sell them homes to pay it. redistribute the wealth of the rich?

You are right though it does help with equality and fairness. It ensures that only the super wealthy get to keep their money while the rest of us have to equally share out the pittance that remains.

If the IHT is due to a house that someone is living in, there is no need to sell the house, and the IHT can be paid by instalments over ten years.

link.

Which is a pretty generous consession IMHO, and gives plenty of time to decide how to deal with the situation, without having to rush into things.

Sorry, but I will never have much sympathy for people who are very well off and moan about how hard done by they are.

Obviously the current IHT set up is wrong. Totally agree with Teeb that not everything that someone owns is an asset. In modest London (including outskirts) where a 2 bed flat now costs over the IHT threshold this policy is madness. It cannot be right that a bereaved family loses their home when one of the parents (or in some cases sole parent dies). £325,000 is nowhere near the cost of an average 3 bed home. Where I live (not particularly affluent area) a 3 bed costs £600-700k and I am talking very average property. The system just does not work for average families in average areas in London and the South.

Can't be bothered to read all of this but, YANBU OP, MM is BU.

But, the threshold needs to be raised, to take account of property prices. IH was meant to be a tax on considerable wealth, not on inheriting a semi in suburbia. No one has ever actively decided it should become a 'middle class' tax, that's just happened. The threshold should be adjusted to bring the reality back in line with the policy behind it.

I 'possess an inheritance tax liability' and have no moral objection to this.

Inheritance is a massive driver of social inequality in this country - especially now, because of property prices inhibiting house buying for anyone whose parents can't help them. (Then there are the unpaid internships). Many of the parents who can help, are baby boomers who have themselves inherited, as well as enjoying the good luck of their generation. The equality gap is widening as a result.

The double taxation argument is twaddle. All advocates must want the entire system overhauled so we only pay income tax. I suspect they just dislike the concept of taxes per se. A much better flagship case for that argument would be removal of VAT on childcare costs. That affects far more people and their children.

And saying VAT on child care is a better flagship example, what it really is, is a good case for a reasonable exception. But, it would be a far more inclusive, socially aware and outward looking example for those who do want to abolish all tax but income tax, to use.

So what would it look like to abolish all tax apart from income tax? Well, the state would have very little money, to start with, since the amount most people pay in income tax is hugely dwarfed by what they will take out over a lifetime - that is, if we want safe and well maintained public services, healthcare, schools, and so on. And what would it mean to tax income (labour) but not capital (assets)? Well, it would massively disincentivise productive work, leading people to rent-seeking and extreme speculation rather than work and productive investment (many would suggest that that's exactly what has happened in the past 15-30 years, culminating in the current financial crisis). This would destabilise the economy, resulting in massive booms and busts, hoarding of wealth, the poor paying all the tax whilst the rich paid none, and widespread poverty and instability. We tax assets for a reason - because otherwise capital accumulation and speculation would overrun the economy. Anyone fancy returning to a pre-modern economy? Abolishing all taxes apart from income tax would do just that!

One of the arguments against the bedroom tax, was people saying why should they leave homes they have lived in all their life and that is their home? Yet, sympathy is not extended to those who are forced to leave their homes because of the IHT. I cried my heart out when I had to leave my family home...I still wake up some mornings and think I am there. It was actually quite traumatic.

It can be pretty startling to see what 300/325k buys you these days in the south

Where I live, 325K buys a studio or one bedroom flat. For bigger properties, add about 150K per bedroom.

However I disagree that that matters. Most people inherit nothing, so I disagree that people inheriting hundreds of thousand are so poor they should be spared this tax.

"One of the arguments against the bedroom tax, was people saying why should they leave homes they have lived in all their life and that is their home? Yet, sympathy is not extended to those who are forced to leave their homes because of the IHT. I cried my heart out when I had to leave my family home...I still wake up some mornings and think I am there. It was actually quite traumatic."

Eh? In the former case people are being taxed on a rented home and the latter they have inherited hundreds of thousands of pounds.

Surely you can see the difference?

To answer mumoftwo about doubting the male nurse story, I assure you it is true. Well, the whole thing was even worse, because firstly there wasn't a will either, so most of the inheritance ended up belonging to the children which created a whole other legal mess. House was a terrace in Hackney and mortgaged too, and in her name as she lived there before she met him. Probably worth about 600k, no idea of mortgaged amount. And because she'd filled in beneficiary forms way before she met him and they had kids, he then discovered that some of her life policies went to her mum, who refused to help out. So he himself got nothing effectively. Then as the icing on the cake her mum tried to take the kids off him and he ended up having to go to court to stop her (which was the biggest shocker for me - had no idea that this could be an issue if you aren't married). And he had absolutely no chance of holding onto the house - bank refused point blank to let him take over the mortgage.

I agree that not being married was the primary problem, but losing a huge chunk of the assets to IHT left a whole lot less to work with once it eventually got sorted.

This isn't an unusual case. It can happen to anybody who isn't married. Mutual friends tied the knot in a registry office pretty sharpish when they saw the fallout from all of this.

YANBU I think it's about the fairest tax around.

I think the Green Party came up with a good solution to this, instead of taxing the lump sum, tax the individual receiving it. So, that it's treated as earnings, sort of. If you leave £500,000 to one person they pay 40% tax on it. If you leave £50,000 each to 10 people they each pay no tax, or low tax, on it.

As for having to sell your home to pay IH yes that is sad, but at the end of the day, actually it was your parents home. Plus if you have one sibling still at home and one moved out what happens? The sibling at home gets to keep everything or they have to sell up to share the I.

Another thing I don't understand is why lottery wins aren't taxed. That's another massive great windfall people have done nothing to earn.

Plus all the people screaming about how unfair it is, you do realise that chances are you will never have to pay it only a tiny percentage do, and if it's scraped you WILL have to make up the shortfall.

But the main problems there anchorage are not that IHT was payable but that a) they weren't married, b) she didn't have a will, c) she hadn't changed the beneficiaries on her policies and d) a rather horrid sounding MIL adding even more stress to the situation.

IHT was the icing on the cake, but all the other stuff was the critical problem, not the IHT.

Once you have assets, once you have children, you need a will and you need to plan it out carefully. This is even more critical if you are not married. And if you don't have complicated affairs, they really don't cost much - a couple of hundred pounds versus a mess like that afterwards?

People really need to not be ostriches about things or assume that it will work out ok or that they have time as they won't die until they're old. They end up leaving a mess behind for grieving relatives.

Kendodd, lottery tickets are taxed, in effect, at 40%. It's much easier to tax the tickets than the winnings - deduction at source. With no taxes, the lottery prizes would be that much larger.

And people do earn them, by buying the tickets. The money paid out is fully funded (and more!) by ticket purchasers.

As someone has pointed out, huge geographical differences in property values make the current system unfair anyway - many who live in London/South East will have properties valued above the threshold - these are not necessarily "wealthy" people.
If people disagree with their children inheriting what they've worked hard all their lives to build up (a very valid stance to take) - that's their business - they can leave it to charity/spend it but why should those that do want to leave it to their children have 40% of it taken?

YANBU.

I too don't understand why people think 'it's already been taxed' and 'I don't want my beneficiaries to have to pay it' are arguments against inheritance tax, as opposed to any other tax. Because I'm just falling over myself to pay my income tax each month! If we accept that the money needs to come from somewhere, then it seems by far the fairest way to me.

Agree there should be some provision for dependants, and that it's relatively easy to avoid though.

I will probably be subject to it both ways before anyone screams jealousy!

IHT is so easy to get round though.

Just put VAT up ?

Just because housing in London is expensive, it doesn't mean that someone who owns a London property outright is 'not wealthy'. They bloody are.

To the rest of us outside the London bubble, a substantial six figure sum is in the 'riches beyond our wildest dreams' territory. It would buy a family home and have a substantial amount of money leftover.

Only the richest 5-10% of estates are subject to the tax, and it is 40% above a very generous threshold, not 40% on everything. And its not only earned income, anyway.

Anyone who owns a London property outright is likely to have owned it for a long time and seen enormous capital appreciation.

Yes, I see problems with the practicalities of inheritance tax but not the principle. VAT hits poorer harder proportionally I think.

The figure for 5/10% of estates, is that the number of people who have assets worth 325k or more or just the people who were personally impacted i.e the people who didn't create trusts/tax loopholes to avoid IHT?

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

Teeb -so sorry and I wish you all the best

Still not sure why people say IHT is so easy to get around?

'Just create a trust' - But to do that you must hand all the money/assets over to the trust. You yourself cannot benefit from it in any way once the gift is made, and if you die within 7 years of making the gift over to the trust, then it will still be taxed on your death.

So that's no use at all to most people, who still need the money/asset available - either as a house to live in, or as savings to live on/potential care home fees.

Also, every 10 years, the trust is taxed heavily, whether you're alive or not. Even if the trust is set up specifically for minors or for someone with a serious disability with no earning power of their own, it's taxed at a high rate.

What is this magical way to evade IHT? I would really like to know!