To think my children have no right to inherit £1m free of tax?

[Gasp0deTheW0nderD0g]

My husband and I had the good luck to get onto the property ladder in London in the 80s when people on ordinary incomes could quite easily buy a family home. By sheer chance our fairly ordinary family home is now worth an eye-watering amount of money. No way could we buy it ourselves now. Our children will definitely not be able to buy their own homes unless they get jobs on far, far above the average salary and/or we re-mortgage or act as guarantors.

The BBC says that George Osborne is about to announce that inheritance tax on family homes worth up to £1m is going to be abolished. Why? Well, obviously to win votes - but from a moral perspective, why should my children inherit £1m and pay no tax on it?

I look at it that you have paid a lot of tax on owning that home.

If you paid £100k for a property then you would have paid tax on that money then the mortgage interest over 25 years would be at a modest 5% (anyone remember the period it went up to 16%+) thats another £125k minimum. then you have paid to live in that property, gas,electric, council tax water rates etc. Presumably you have paid for repairs and decoration of the property etc all with taxed income. I presume you have not claimed any housing benefits etc and given the property could have gone down in price and you would not get tax relief if you lost money then really you shouldn't be paying anything on the profit.

Tbh I think the OP was written deliberately to sit in an Aibu and create a bun fight. My mistake was responding to it as if the op was genuine in her puzzlement about a real situation rather than wanting a fight.

I should pay more attention. It was harder to spot than the 'Aibu to think Tories are cunts' threads.

It's early is my only excuse.

Instead of this there should be a provision of delayed taxation to enable children to live on in the family home on the death of the parents. (I'm talking about children who already live there not those who live elsewhere). I've known some heartbreaking stories in my life of adults forced to move out of their childhood home to pay iht.

There is no 'correct' amount of tax to pay. Arguably home owners avoid huge amounts of tax because you don't pay capital gains tax on a principal private residence.

Not really, Pag. It's true I made a deliberate choice to put this in AIBU and I expected a spirited response, but my views are genuine. I don't think this makes sense and it makes me cross.

Oliversmumsarmy, not really. We'd have been paying tax and NI out of our earned income if we'd been paying rent rather than a mortgage. Everybody has to pay for gas, electricity and so on. Council tax and water rates - we're paying for a service. Nothing whatsoever to do with the house price. As for the idea that a London house could go down in value, yes, in the short term there have been property downturns here and there but in the long term, no, it just goes relentlessly up and up.

Not only has no tax been paid on it, as it is mainly house price inflation, but it's worse than that, because people forget that they never bought their first house with their own money.

Eg, the 80's, buy for £100K, sell 5 years later for £200K. But you never had £100K to start with, only a £5K deposit. You borrowed £95K, and got MIRAS tax relief on the repayments.

So when you sold for £200K, and paid back the mortgage co the £90K or whatever you still owed on the mortgage, you had turned your £5K into £110K, tax free.

So OP is right, it's completely unfair. Having said that, I will still take advantage of it, and it'll be left to my kids. That's because I want my kids to have as good a life as possible, and that's my responsibility. It's not my responsibility to adjust my financial affairs to compensate for an unfair tax system.

gasp I completely agree with you, and in fact it is likely those who inherit will put that money into property and so the cycle of house price inflation continues.

Merrymouse yes the plane will be taxed on death but my question is why incentivise people to buy a plane in the 7 years before death rather then make gifts? Particularly smaller amount gifts, hence my example of dividing the £1mn between 20 people?

Because it's better for the economy?

Jassy the lifetime gifts might be to avoid tax, or there could be non tax avoiding reasons - eg help gc with deposit on a house in areas where you need £80k to get started and have no chance of saving it.

Your example of giving 20 such gifts in a lump sum in a relatively short period of time looked a lot like trying to dodge tax. £80k would be a pretty hefty hand up with a deposit no matter where you live - it'd get you a 20% deposit on a decent 2-bed house in my nice leafy SW London suburb, for example. It's quite difficult to see this as a move that's net positive for the economy.

So in your will leave a certain % to HMRC, simples.

But you wont do that will you?

Exactly, TTWK. I want to give my children a leg up, actually. I recognise that this puts them in a very privileged position but there are limits to my unselfishness! However, I believe that the state has a perfectly legitimate claim on part of my income/assets to even things out a bit so that other people get looked after too. In the long run I think it benefits everybody to have the state providing important services like health, education, defence, policing, social security to a good standard.

It's alright Gasp - I'm sure it's going to be an interesting discussion.

I'm just pointing out that my answer of 'then don't leave it to them' was genuine and dismissing at that as if it was obtuse or a 'glorious chance' at anything was not true.
But I'm off to a fun fair soon so enjoy

So then OP, we can assume that you will be taking steps to ensure that every last penny that would have been paid in IHT will still go straight to the state, and not to your kids then, yes?

Because people are sick of getting nothing back for working and being treated as if owning stuff and having money is a crime.

I think there is a point being missed here. When you inherit a property, you can currently be taxed on the property as a whole, even though you are not realising any benefit by selling it. Tax is generally charged when cash is realised through earnings or selling something. If the person inheriting the house sold it, they would still pay capital gains tax on any increase in value since their parents bought it originally, but that tax is charged at the point of sale. So by removing inheritance tax you are just removing a tax which goes against the general system of charging at the point of cash gain. So inherited will pay tax if they sell.

Sorry, Pag, if I was rude. I'm not generally a rude person so it does genuinely bother me if I've made you feel bad. Enjoy the funfair!

I will put (my tax free salary) money that the op does not leave this house to the poor and needy and does not donate the profit above the mortgage paid on the house to the government as moral tax. It's all just a load of left heart bleeding bulls hit and champagne socialism.

And you would win! Read the thread. I have no intention of leaving my entire estate to the poor and needy instead of to my children. I just don't want it to be up to the individual's conscience whether to pay some of their income/wealth back into society through bequests to charity. I want it to be mandatory.

Your children don't have the right to inherit tax free, but you should have the right to decide what happens to the home that you own when you die.

The problem with inheritance tax at the moment is that it is the dead person that is taxed, not the people who inherit. I completely agree that there should be an inheritance tax, but I think people should be taxed on what they actually inherit. So in your case, assuming for example that there is exactly £1m left after funeral expenses etc and that you have two children, each of your children should pay tax on the £500k they each recieve. Like capital gains tax. Instead of you as a dead person paying tax on £1m.

The argument that tax has already been paid on your property just doesn't make sense, as the capital gain hasn't been taxed and thats where most of the value is. But inheritance tax is unfairly administered at the moment in my opinion, and I think thats why so many people go to lengths to avoid it. If it were fairer, and people were only taxed on what they inherit, people would be less inclined to make arrangements to avoid the government taking what they want as soon as they die.

Jonty - CGT payable when selling a house you inherited based on what your parents paid for it?

If part of your beef is that your children won't be able to get on the housing ladder and yet you were lucky with 1980s timing, downsize and use the proceeds to help them out with their deposits. You can help them out to the extent that you reduce the value of your estate below the IHT threshold whatever it may be (and then live for another few years to avoid a claw back). Job done.
I'm just pointing out that it doesn't matter what the limit is, IT IS STILL A TAX THAT ONLY STUPID PEOPLE PAY.
The real problem is the underlying housing crisis and this won't go away as long as there is a market in housing and demand exceeds supply. This ghastly situation also entrenches inequality because the likes of you (and I), can downsize and give our kids a heave up. The other poor sods can just stay as generation rent. Forget private education, this will be the real driver of the wealth gap in the future.
Our housing market windfall would be better tackled by a tax on what it is i.e. a capital gain. There has long been an exemption on gains made on your primary residence and maybe we could have a political leader with the balls to look at that (holds breath).
In answer to your point about the proposed £1M limit, IHT was never meant for the masses it was for the super rich but it has had the effect of netting ordinary people and is now especially London centric.

I think Jonty's wrong. It's a long time since I studied tax but the principle surely works like this:

X buys a house for £100k. X dies. The house is then valued at £400k. Y inherits the house. Y never lives in the house and has another principal private residence. Y sells the house a year later for £500k.

Y pays capital gains tax on £600k less £500k. X's £300k gain is irrelevant to Y.

A New Statesman article in 2008 nailed it:

‘Inheritance tax is a double tax,’ the critics say. But it isn’t, for the simple reason that someone who is dead can’t pay taxes. The tax is paid by the recipient, and is a first-time tax from their point of view. And why would it matter if it was a double tax? If a double tax is any tax one pays having already paid tax on one’s income, then sales taxes and council taxes are double taxes. But we don’t see the same indignation about them.

Jontydoggle It's not correct that if you sell a house you inherit then you pay CGT on the gain made since the deceased purchased it. You actually get a CGT free uplift. If all estates had to pay CGT on the value of a house the treasury would actually take more. The annual allowance for CGT is much lower than the IHT threshold.

What we all need is to be able to buy homes based on our income, not inheritance.

It's not as though my family and my brother's family can all live in my parent's 3 bed semi, however valuable it is, and we certainly don't want to be still living with them in our forties.

I thought Jonny was saying get rid of iht and replace it with cgt based on what was originally paid - a bit like when spouses pass property between each other?