To mention to my healthy parents in their early 70s to think about avoiding inheritance tax

[Soamiasnob]

Its a morbid subject, but I know you have to sort these things out 7 years in advance to avoid IT.

Aibu to mention that they should think about it now?

They have inherited a lot from one side, and I know do want to pass it on.

Maninawomansworld world - what part of "hard earned" is a family farm that's been in your ownership for 400 years? I assume you inherited it as did your family before you. Agricultural property relief is available for conventional holdings to prevent the situation arising that you posted. Whilst this may not otherwise apply to your other land and property well done for using the best advisers possible to avoid paying a penny on your inherited fortune.

You are planning to deprive other taxpayers of over £100k that should be paid. Imagine if someone had scammed £100k in fraudulent benefits

Spending your own money on yourself, or giving it to your children, which both reduce inheritance tax, are morally equivalent to theft? (Fraud is theft.)

Do they have a financial advisor? if so, he should have mentioned this to me/arranged it for them. Definitely a good idea to bring it up. Point out how much they stand to lose!

IHT would be fair if the threshold depended on house prices where you live when you die.

mentioned it to them, not me! That would be odd :)

I don't think that's right, Partridge. Tax only starts being payable after £325,000 ie everything up to £325,000 is tax-free. (like your personal allowance in Income Tax). So if you inherit exactly £325,000, you pay nothing: if you inherit £375,000, you pay 40 per cent of £50,000 etc.

maninawomansworld I trust with your £7m you are planning to provide any care they need in old age now they have no money of their own, and won't be expecting me to contribute?

Re.King Lear, I know Regan and Goneril behaved appallingly to their father, but I do have some sympathy for them; bringing one hundred knights who then had to be fed and housed was bad enough, but then when his knights treated Goneril's staff badly and the Fool hit Oswald with a bladder and so on, I don't blame G for being pissed off.

nosunday, I didn't see boomtown's comment as nasty. It is just that homeowners, particularly older people planning IT issues who bought their house a while ago, will have seen the equity in their house shoot up over the last 10, 20, 40 years, which could well get them over the IT threshold without being particularly wealthy. Those who live in council houses do not, of course, get to see benefit of that equity in their homes.

I know what you mean, OP, but I couldn't bring it up with my parents - I think they're probably quite well aware of their finances.
Partridge, you do realise it's only 40% of the amount over £325,000, don't you? Not 40% of the whole amount once it tips over £325,000.

Sorry, not sure if anyone has said this, but if you are talking about the family home in which they currently live as the main asset, it is very complicated and potentially upfront expensive (and probably won't work) to do any tax planning with it. They can't just sign over the house and keep living in it. Loopholes in that area were being rapidly closed down when I briefly worked in this area, and that was nearly 15 years ago.

I struggle to think of anything more awful that inheritance tax

Really? Lucky you inheriting £7m+ tax free. But if you can't think of anything worse than inheriting a mere few million I am really surprised. Although I can see that farms are tricky with IT if you want families to keep farming.

The argument about it being taxed already is daft. Money is double taxed all the time. It's not a logical argument against IT in particular is it? Or am I missing something.

YABU because

1. as others have said, IHT is a fair tax. inheritances are generally unearned windfalls for the heirs, and taxing that is far fairer than taxing earned money.

2. the only way to avoid IHT is for your parents to start giving you money now. you can't ask them to do that. They may need it to fund their retirement/future care. They can't give you the house as they need it to live in. They can't give ownership to you with a right to stay in it for their lifetime as tax rules say that is still them retaining an interest.

There are IHT reliefs available for farmers and business owners. The availability of them depends on the business setup but it's rare for farmers to pay inheritance tax when passing on the farm, provided that everything has been thought through properly. Their other non-business assets would attract tax the normal way, of course.

I think it's odd for you to bring it up because it sounds so grabby - but if they mention again passing it on, that might be a good time to say something about how they do so.

Or, if they've been fairly explicit about wanting to, maybe you could, say, comment that someone else mentioned such-and-such a website which explains how inheritance tax works and how best to deal with it, and get them thinking about it that way.

You'd be paying £2,670,000 in tax on a bequest of £7,000,000 by my calculation. That's a lot of cash to find if it's mostly in the form of property or land, you'd probably have to liquidate a good chunk of it to pay the tax. Can you imagine being the individual who 'lost' the farm or house that's been in your family for generations? I would find that difficult to deal with, mentally.

You pay tax on your earnings, stamp duty on the house you bought, tax on any interest generated from savings. If you're lucky enough to have assets in the form of classic cars, jewellery or art then you probably paid VAT when you purchased them. In the same way that I don't agree with the 'Mansion Tax', it doesn't seem right to be that you should have to pay tax on these things again. Being pedantic I suppose it's your heirs that pay, but still; if you've been prudent and saved or worked hard and made a bit of money, must be a bit of a kick in the balls to see your children potentially face a bill of that magnitude.

In regards to the OP, i think it depends a lot on your relationship with them. Certainly with my parents I could be able to have a reasonably frank conversation with them without worrying about appearing mercenary (we're all quite blunt), but not everyone's family is like that.

flightywomen

You sound really whiny about this. It's not fair that income neither your GPs or parents really earnt is taxed? Your mum has been landed with a huge bill. Presumably a large amount of money (unearned) left over too?

I've never understood the fuss about inheritance tax - if you inherit enough to pay it you will still be left with thousands and thousands of pounds after tax - or millions if you're really lucky.

I will just pay what I owe and thank my lucky stars I inherited a penny - a penny that i never worked for!

Some parents might be grateful for this and others will be mightily offended. So I think you should think carefully before you raise this subject.

They might well need the money in the future to pay for their care.

Thank you to everyone who corrected my abysmal maths!!

Another thing to mention....

If one spouse dies first, I think the surviving spouse can carry over their late DH/DW's IT allowance of 325,000, if it is not used (and I think it depends on how they have organised their marital finances and the value of the primary residence). For example if the deceased DH/DW's 50% of their main residence passes to the surviving partner due to marriage, I think that isn't subject to IT.

Someone can correct me if I have mis-stated it, but I think that's how it works.

In fact, if the surviving partner then goes on to remarry, they can carry forward their late partner's unused IT allowance, so that it can be applied to the portion of estate that is owned by the surviver. It could go a long way to eroding IT liability.

That's what I'm doing - I have even written a note to DP so it reminds him in case I keel over before him

Bite the bullet and talk to them about it. Whilst you are there, ask them to do Lasting powers of attorney as well. You'd be amazed how many people don't broach these things and then its always a mess and a problem when they do.

Please OP, have the chat and at least they will seek some advice and know what their position is. Oh, and speaking as a probate solicitor, there is an awful lot of bollocks being spouted on here as to when and how much has to be paid. I make no comment as to whether it is fair or not.

I don't think your maths was bad, partridge, I think it was just a misinterpretation of how IT is charged - on the amount above the allowance rather than the whole amount.

Its all far too confusing and awful, I think we should all live life like there's no tomorrow and hang the consequences.

ONLY KIDDING FOLKS!!!

Daisychain, it only applies to married couples so if he is a DP and not a DH then you will have to pay tax if you inherit more than £325k from him.