Inheritance Tax AIBU?

[FrancisUnderwood]

NC for anonymity on this sensitive issue but long time lurker/poster.

Essentially, my DF has an estate worth just over 1mil. Not earned by himself but handed down through the family.
He has benefitted greatly from his own Parent's IHT planning genius and is now in a very fortunate and lucky position.
I have recently broached the subject of IHT planning for the family, going forward. With money comes responsibility etc... I have made it abundantly clear to him that this is not a conversation I relish having to have with him, and that i'm wholly aware it is now HIS money to do with as he wishes and that I'm in no way trying to get my hands on his money whatsoever, but I would really appreciate him trying to manage his estate in such a way that it minimises the 40% tax liability his children would have upon his passing.

His answer to this has been unbelievably flippant, he says 'Well that's just the way the country is' and 'everyone has to pay their taxes' whilst conveniently forgetting he has benefitted massively from careful planning on his Parents part. He says 'you'll be alright', which of course is true, but he could do certain things at no cost to himself which would in essence save his children £250,000 on his death, but won't.

I don't want to come across as if there is greed at play here, my family has led a hand to mouth existence and I simply understand the value of £250,000, which is more than a lifetime's income for most people, rather than being greedy for it.

I just can't reconcile in my head how he'd rather give a property to the taxman than plan ahead and hand it to his children.

I've tried to be as delicate and sensitive about this topic with him as I can and now our relationship seems to be disintegrating rapidly, we haven't spoken for a week.

This isn't about me 'taking his money' it's about planning ahead to avoid having to sell family property later. His attitude seems very much to be that 'I've got it and i'm keeping it'.

We've sought financial and legal advice together on the subject but he just doesn't want to do it.

I bend over backwards and have just given up 18m of my life to his care, and catering to his every need. I just feel kicked in the stomach.

AIBU to feel this way, or is he?

To suggest that I only care for my Father 'for the money' is just plain nasty

Its mumsnet whenever wills or money is mentioned.

i agree op your dad should listen at least to whats being said before out right rejecting it.

I have a rather hard approach to people not wanting to face up to wills, its childish and you have too.

We have done ours, in our 40's and as dc get older I will make them executors and up date them as to its contents. We have nothing to hide and want to be up front.

If one dc becomes an addict then we will have to re think.
I brought them into this cold hard cruel world, and I want to make sure what meager assets we have go to them when we are long gone.

In fact I think it should be law everyone at least with dc should do one. In France they have different rules? you cant disinherit or something? passing wealth down should keep people off benefits and all that stuff. I am not saying not paying any IHT at all - on smallish estates i dont see whats wrong with some planning.

What would be for the good of the country would be if we cut the amount of money we have to borrow to give away in the name of 'foreign aid' by 50%. OP's father's £250k is loose change the Treasury wouldn't bother to look for down the back of the sofa. It would barely pay two minutes interest on the national debt. It would mean far more to her family.

OP, YANBU and the PP who seem to think we should all pay as much tax as possible are either winding you up, or are poor people overcome with envy at the prospect of someone inheriting a large sum. Ignore them.

I quite understand what's bugging you is that although your father has this money now, it's only his in the sense of him being its trustee, as somebody else earned or acquired it and passed it on to him through careful planning. All you are asking is that he do the same, which is entirely reasonable. It may just be that he dislikes thinking about his death - the same reason many people can't face making a will - but who knows. What does seem likely is that you mentioning it will not have the desired effect, so I suggest you leave it for now.

Perhaps when he has a chance to ponder on the future on his own he'll come round and realise his duty to his family.

Your DF is a selfish, idle pillock who I'd just too damn idle to make arrangements to avoid IHT. You have my sympathy for what that's worth. Paying tax unnecessarily is no mark of virtue or having a social conscience, it's rank stupidity.

On another note, do people say they are NC for some reason?

Why not just not NC without fanfare, who really cares. I do it every so often but never announce it.

Woops. What did I do there.

On another note, do people say they are NC for some reason

There's nothing wrong with saying you have name changed. It's let's people know you are not a new poster.

So many people seem to be missing what seems to me to be the crucial point, that he made sure to minimise IHT when it would detract from what he would receive. This indicates to me that he isn't a super ethic benefactor of the taxman as many here claim to be. So either A) he is making a shitter of a point to his kids by being so blatant, B) an arsehole or C) there is something else going on. Fear perhaps, inheritance going elsewhere etc.

Unless he has converted to being a firm believer in IHT since his own inheritance, which would seem... unlikely.

What would be for the good of the country would be if we cut the amount of money we have to borrow to give away in the name of 'foreign aid' by 50%

OP, this is the philosophical company you're keeping. I'd give that some thought.

@WhollyFather

OP's father's £250k is loose change the Treasury wouldn't bother to look for down the back of the sofa. It would barely pay two minutes interest on the national debt. It would mean far more to her family.

And if everyone thought like that what sort of country would we live in then?

I think the issue here with the OP, quite understandably, is the hypocrisy of how her father received an inheritance that involved little/no tax bill yet her father refuses to acknowledge he could do the same for his DD.

Totally disagree with inheritance tax and totally agree with you. I actually think it's selfish to not think of the future. To work hard all your life and not to pass it on to your family because you can't be bothered to organise the better is really not on. However I don't think there's much you can do about it. I'd guess that rather than being pragmatic about it he is thinking about his own mortality and feeling a bit vulnerable.

As someone who has just had to see an IHT bill of £191,000 be paid, I am with you on this.

I feel so frustrated more wasn't done to avoid the bill as much as possible (transfer property into family names, go and spend a load of it on travelling the world, anything to keep most of it from the tax man).

I am so angry that someone who worked hard all their life, made a decent living but was by no means 'rich', paid tax on all of it, then gets taxed again.

Oh, and the bill is due before probate is given, so if the estate doesn't have enough 'cash' you have to agree to pay in instalments!

I really wish we had all sat down and discussed the issue years ago, to be prepared and try to workout a better way to move forward. You're not being unreasonable!

My DParents died last year leaving an estate of c£1.25m. They had tried to do some IHT planning but when most of the assets are property it is actually quite difficult. We had a large IHT bill to pay with most of it due within six months of my DF's death and on 10% of the liquid assets due (I think) when we applied for probate. Luckily I had an offset mortgage so was able to draw down in this to pay it.

IHT was also due on some gifts they had previously given but were given less than seven years before their deaths. They did benefit from the property boom but wanted to maximise what their family received and minimise IHT (as we hope to do).

IHT bill was still about £240k I think, so taxman got his due.

The only bits of tax planning that really worked really were utilising the annual gift allowance and making regular gifts out of income e.g. Christmas, birthdays etc.

mummy2oneandtwo

".. anything to keep most of it from the tax man ..."

I wonder if you can at all understand the other way of putting this, something like, ' ... anything to keep most of it going to the public good, paying for such things as Health, Education ... but instead keeping it all for me and my family who did nothing to earn it other than to be born with particular genetics ...'

The same thing under a different description?

As for, " ... was by no means rich ...": I wonder if you can hear (in the distance, perhaps) the hollow laughs of so many of your fellow citizens?

Etymology23, thanks for the thoughtful reply. I think I agree with you about the primacy of off-shoring. But consider: if I can legally manage funds offshore so as to avoid, say, CGT in UK and elsewhere, do I behave unethically if I do so?, and if so, what's the relevant distinction to be drawn with trust funds for IHT avoidance? Or, what about arranging for a multinational's profits to accrue in low tax jurisdictions whilst activity/turnover takes place dependent on a high-taxed country's infrastructure?

I suppose many of us deplore the (legal) tax avoidance of Amazon, Apple and so on; I'm suggesting that we should apply the same moral principles to ourselves as putative inheritors of family wealth. And, more than that, I point out that if we do so, we will thereby be happier, better people. That's how ethics works out. Really.

I am very happy for other people to be ethical. For me, dh and I pay enough tax. I'm bored now and want to look after my children instead.

Only on mn do you get people lining up to give HMRC their due and angst about simple and sensible tax mitigation like contributing to pensions and ISAs.

I tip my cap and wave you on - go right ahead.

mummy2oneandtwo how much of the estate that was taxed £191,000 was from property?

Now obviously I don't know the real figures involved but theoretically it could have been something like:

Married couple both born in circa 1930s, get married in 1950s.

They buy their first property, a small and not very nice house therefore below the national average in 1960 for £1,800.

In 1970 with a growing family that house is now worth £3,600 having followed house price rises, the mortgage owed is now only £1000 so they have £2,600 equity and can upgrade to an average priced house - worth say £4,400 at 1970 prices.

10 years later in 1980 that house is now worth £22,700 and the original mortgage has all been paid off but they still have 15 years to go till retirement and want a place big enough for the grandchildren to be able to stay. So that £22,700 becomes the equity to buy a place worth, in 1980, around £100,000.

In 2005 they retire with a nice final salary pension scheme linked to the final salary of £50,000 including a lump sum thar pays off the remaining mortgage on the nice big house and have an index linked £25,000 per year from then on.

In 2015 after 20 years of receiving that pension one of the couple dies, and in 2017 the surviving spouse dies. The only asset is the house, worth £100k in 1980 and now worth £1.13 million thanks to house price rises.

£191,000 inheritance tax is due, being 40% of the excess over £650,000

Yes the couple worked hard and paid tax all their lives but at least £900k of that wealth was unearned from house price rises plus the last 20 years of their income (at least £500,000) was from a pension scheme that was constructed on the assumption that most people would only survive around 5 years into retirement so frankly quite a large percentage of that was also unearned.

Given all that, I think that £191,000 is a shockingly small price to pay for the benefit of the vast majority of the country who have not been so fortunate to amass such wealth despite working just as hard.

Only 7% of estate pay any inheritance tax at all. An estate large enough to pay £191,000 in inheritance tax is very very large and the heirs are not going to be anywhere near impoverished by the loss of what amounts to 17% of the whole estate.

I guess that depends how many heirs there are!

9toenails Putting things in trust doesn't exempt them from tax, otherwise everyone would do it. Whenever you put items over the IHT threshold into trust you pay an immediate 25% levy (on top of what you've put in), plus then there's another 20% levy (simplified) if you die less than 7yrs following. There are then IHT charges of approx 6% per decade, or when items are transferred out.

Income earned by assets in a trust is generally taxed at a higher rate with no personal allowance and CGT has a similarly punitive set up. The only really way to avoid this would I think, be to set the whole thing up as a business, but that this point one really gets into the realm of tax advisors.

Honestly, I don't have a right answer because there are an awful lot of us in this country who are richer than we NEED to be - ultimately if you can afford to go on holiday or buy a not old car, or overpay your mortgage or work part time or even send your kids to private school or have a spare bedroom then you could be giving more to the exchequer or to charity. That becomes vastly more extreme the more you earn.

But if you believe that society won't function in a totally communist world, and I tend to think it won't, then you have to accept some inequality. And I also tend to believe that ultimately looking after your own relatives is a very natural human trait. I totally disagree with the "spend it all so the taxman won't get it" as there is nothing wrong with paying tax. I think there's a form of philosophical thought where you can do more "good" in your immediate circles than to randomers and I don't know if that can be argued to be true, but it seems instinctively sensible to me.

Either that or we all accept we are all being immoral, which is possibly also doable - that's what I've accepted round vegetarianism. I think ultimately I also don't want to see things like stately estates broken up into flats, because their maintenance as historic monuments matters to me, and I also understand why any individual family would agree, particularly about their own assets. It's not the actual paying of tax that would concern me, but the liquidation of astonishing assets. A very remote concern, certainly, but still one that exists.

Heaven's forbid that people actually pay their taxes.

Well, that is evidently the view DF took when he'd be the one losing out...

Only on mn do you get people lining up to give HMRC their due and angst about simple and sensible tax mitigation like contributing to pensions and ISAs.

And those same people suddenly change their mind when it becomes their problem and they face a huge tax bill!

Best I had was a teacher who was the school's union rep. 100% socialist through his bones. He started a small business alongside his teaching and union work. At first, he was all for paying tax on his business and wasn't interested in any of the usual/legal tax planning options - hardly surprising because it was loss making at first, so he benefited from the loss relief and got himself a lovely repayment cheque each year! Then when it started making a tiny profit, he was still happy to pay a tiny tax bill. But then it started making a bit more, and one year, the profits were still small, but they pushed him into higher rate tax and he went ballistic when he saw the tax bill and morphed into a rabid tax avoider, the moment he realised he had a cheque of thousands to write to HMRC - all his principles were forgotten, he converted to a limited company, appointed his wife as co-director/shareholder, started to ask about tax saving via company cars, pensions, etc. I'd never actually seen someone change their entire political philosophy so quickly. He's now a regional rep for the teachers union and sometimes appears on TV and I just can't stop laughing when he goes on about tax avoiders etc - 100% hypocrite!!

I think IT should be different at different rates for money gained from salaries and money 'earned' through house price increase.

We have already payed income tax on all of the money we have acquired (mostly at 45%) so it seems harsh to have to potentially pay another 40% on top of it if we were to die without spending it.

People who have benefitted from gains in property value haven't paid tax on it.

IHT not IT

Funnily enough I read this thread last night and was thinking about it on the way into work this morning.

I echo the posters who tell you inheritance tax isa violuntary tax. Fair enough your dad can leave it to the dogs home or to the tax man out of some altruistic miguided sense of public loyalty - but in reality all he's doing is destabilising your futre and possibly condemning you to a life of housing benefit.

The amout in relative terms to the governemnt, your dads estate is peanuts. But it cold secure your future and that of your children.