What are the Tories thinking with insane £1,000,000 inheritance tax threshold proposal for family homes?

[Figmentofmyimagination]

It's almost as if they have completely lost their way.

"Anyway IHT is a voluntary tax on the stupid. You just have to give it all away and live 7 years and you don't pay it which is what anyone sensible does,"

Death can happen when you least expect it. One of my brother's friends lost both parents at the age of 14 and had a huge inhertiance tax bill. His parents had not planned to die in their 40s.

"if I die tomorrow my children are homeless due to 40% IHT"

Isn't that what life insurance is for?

Most of inner London are Labour safe seats, yet a lot of those properties are now worth over the current joint threshold so not a case that all people with houses worth over 650,00 are tories...

IHT is voluntary as long as you don't actually want to have any money yourself, or live in a house you've loved for years. I get driven insane when tax advisers call it voluntary, shows a complete lack of understanding of what drives people, and avoiding IHT is generally far down the list from having a secure roof over your head.

If your children are dependants, the rules are different

No, the rules aren't different for dependants

I stand corrected on that one then. I agree that children shouldn't be made to move out as children of the estate isn't big enough for 10 year installlments to be paid. I said up thread that I supported longer deferrals in that case. Its also prompted me on life insurance, which I've meant to do for some time!!

www.gov.uk/trusts-taxes/trusts-and-inheritance-tax

Rules are different for bereaved minors (although iht is delayed rather than avoided).

Well then I stand corrected again!!

Is it this bit (re my homeless children) you mean on the link:

"Trusts for bereaved minors

A bereaved minor is a person under 18 who has lost at least one parent or step-parent. Where a trust is set up for a bereaved minor, there are no Inheritance Tax charges if:

the assets in the trust are set aside just for bereaved minor
they become fully entitled to the assets by the age of 18

A trust for a bereaved young person can also be set up as an 18 to 25 trust - the 10-yearly charges don’t apply. However, the main differences are:

the beneficiary must become fully entitled to the assets in the trust by the age of 25
when the beneficiary is aged between 18 and 25, Inheritance Tax exit charges may apply".

That seems to imply if I exclude the older 3 children from their inheritance entirely then the younger would receive the house in trust and no IHT

(probably unlikely I will die in the next 2 years before they turn 18 actually; but interesting all the same. I knew about the 10 year rules. I cancelled £2.5m of life insurance which was in trust for all the children about a year ago, as decided I was unlikely to die before they left university -my risk, my choice).

On "voluntary" - okay so this house may be worth £1.9m (no other assets). If I die when I'm around 85 ish then it could indeed have been sold before then and divided between the children free of IHT or I pay a commercial rent to the children for it and still live in it but have given it away to them when I turn about 75 ish.

The one thing the state cannot take away from my children is their education. the £1m or whatever I will have paid on that can never be stolen from them by Big State.

A psychologist called Kohlberg did some well known research quite a while ago into moral values, demonstrating that children and some adults are only capable of thinking morally at what he calls the pre-conventional level i.e "what's in it for me (and my immediate family)". Only a minority of adults can reason at a "social contract" level and even fewer are able to make genuinely altruistic (nothing in it for me at all) decisions. And the more there is to lose, the more likely you are to hang onto what you have and to convince yourself that you have earned it exclusively by your own hard work and special skill. There is lots of well known work to support this last bias.

There is another moral reasoning level too, which is "can I get away with it/others get away with it, so why shouldn't i".

It is interesting - although a bit depressing - to see so many pre-conventional thinkers on this thread.

The conservatives know their target audience well and will have researched how this policy is likely to play to their psychology.

Interestingly there is also a link between higher level thinking (social contract/ethical reasoning) and levels of higher education attained. This is the basis for the view that on balance, conservative voters are less intelligent. But I'm not sure how old this research is and whether it still stands up. I think it needs to be treated with caution. In particular you need to be very careful how you define intelligence., although ability to empathise beyond your immediate family would seem to be a core component of moral intelligence.

The one thing the state cannot take away from my children is their education

Plus all of that lovely pre tax inheritance of course. It's not all gloom and doom!!

Nothing does the less fortunate more good that differences between rich and poor and the incentive to work hard and do well. It is why capitalism has been the only system which has ever worked - it is as morally good and altruistic, indeed more so, than any other system.
If all you have is taken from you then little is achieved as the Chinese communists found when they paid doctors the same as street sweepers.

It's very lucky then that in no way is everything taken from you.

I agree that regulated capitalism is the best way we've found so far, but there are of course different degrees within that wide framework.

Taxing people on income that haven't earnt is more conducive to encouraging work than on come they do earn I would have thought.

Income, not on come!

Oh dear, Lotus. You do realise, don't you, that there's a world of difference between the old Chinese communist model and the kind of rampant capitalism and wealth inequality that exists in the UK now.

Can't quite believe how black and white some people's thinking is. Ever tried looking at the bigger picture?

Figmentofmyimagination

I'm not sure how handing a lot of money over and above income tax, stamp duty, VAT, etc to the state is "altruistic". This is where your condemnation falls apart. The state has enough money, they just can't manage it properly.

So you also disagree with all taxes apart from income tax? Since that's being taxed twice too?

This question wasn't for me, but I'll answer it. I think you should tax income exclusively, except those taxes that are essentially activity-based costing. For example, taxes on gasoline to repair the damage to the environment, tax disc to maintain roads, taxes on cigarettes to the NHS, etc as these are ways of shielding non-users from unfair taxes.

Nothing does the less fortunate more good that differences between rich and poor and the incentive to work hard and do well.

Rubbish - look at all the corrupt countries in the world where children live in slums or have to make a living on the streets.

Re: minors, IHT becomes due eventually when the assets leave the trust. although with a house worth £1.9 million presumably you have a will and will have discussed this.

The state has enough money, they just can't manage it properly.

This is an interesting statement given the huge amount the country's huge debt. Can you expand? Do you think they spend it on the wrong things, or waste too much in tryimg to deliver the correct things?

I'm astounded that you think people who actually earn money should be taking on more of the tax burden over those who are simply given it. What's your logic?

I would like a state half the size of the one we have yet even under the Tories the sttae has got bigger and bigger. There is no low tax, small state libertarian party in the UK- those of us with those rules are unrepresented as the Tories are wet wet wet and there is little difference between Labour and Tories.

The state manages its money very badly so it is much better if grown up tax payers are the people who decide how most of their own money is spent.

Never in British history have those who earn more than most paid so much of the tax burden. There has been a massive change in tax burden from the better off from the less well off in the last 10 years.

"it is much better if grown up tax payers are the people who decide how most of their own money is spent."

Not if they're as clueless about finances as you, Lotus.

Cancelling your life insurance is indeed your choice. But the risk belongs only to the beneficiaries.

Unless you think they were planning to bump you off for it.

Half the size. So what would you get rid of?

Nothing does the less fortunate more good that differences between rich and poor and the incentive to work hard and do well. It is why capitalism has been the only system which has ever worked - it is as morally good and altruistic, indeed more so, than any other system.
If all you have is taken from you then little is achieved as the Chinese communists found when they paid doctors the same as street sweepers.

Tee hee. Lotus you would enjoy Francis Fukayama's famous book from 2000, "The End of History". His basic thesis was that the end of history had been reached by 2000 because free market western liberal democracy had triumphed with the collapse of communism, and simply could not be improved on. Life would just get better and better.

Sadly what Fukayama failed to notice was that communism (or more accurately fear of communism) was in fact functioning as a countervailing force to free market economics. So when it collapsed, it was as if one person simply got off their end of the see-saw, and we know where that led us.

We all like to imagine that the post war settlement - welfare reforms, NHS etc - were an acknowledgement of the sacrifice of people who lived and fought through WWII - a sort of moral "we can do better" - but in reality the most important policy imperative behind social compromises was fear of communism.

As soon as that fear was removed, there was no stopping the "markets".

Most normal people understand that what is required is a balance. There might be some debate as to where on the spectrum you want to sit depending on your values, but a society that fixates on just one end of the spectrum isn't any good for anybody except (in both cases) the most wealthy and well connected.

It's hard to comprehend the number of people who think that we shouldn't be taxing unearned income, ie capital gains in a house the deceased no longer requires. I'm not against being permitted to liquidise assets before IHT is payable, within a reasonable timeframe, but apart from that all the whining from potential beneficiaries of hundreds of thousands of pounds is deeply unattractive.
As a country, shouldn't we be rewarding everyone who works hard, and not just the ones who had the foresight to be born into the right families?

I'm not sure how handing a lot of money over and above income tax, stamp duty, VAT, etc to the state is "altruistic". This is where your condemnation falls apart. The state has enough money, they just can't manage it properly.

Hey Goodbye I'm not sure I was engaging in "condemnation" (?)

All I was doing was sitting on the train idly speculating on the interesting moral spectrum on display on this thread. I'm not actually sure that "altruism" comes into a question of paying taxes. I think most people would recognise a need for something in return - e.g. I pay my taxes because I get a decent police force, or whatever.

The ability to understand a "social contract" is key, however.

In fact I accidentally left out a really important moral norm - obedience. Most of us pay our taxes because the law says we have to.

Your point about objecting because you think the legislature waste your taxes is interesting . You recognise the existence of a social contract but think that one side isn't performing it very well. But I'm not sure that this is an argument against inheritance tax as a matter of principle?

I agree - the argument about how much we need to raise and how well that is spent is an interesting, but different one, to the fairness of IT as compared to others.