Does the UK tax system seriously discriminate against single parents?

[Porcelaincup]

Single parent of an adult child.

I am fortunate that, in the last year, my annual salary has risen to 50k. Personal allowance of £11,850, therefore I hit the 40pc threshold. Yet, if I was married and each of us earned 25k, we would have double the combined personal allowance and not hit the 40pc threshold. My mortgage and most household bills would be the same whether I was married or single.

Inheritance tax rules mean that when I die I can use the extra residence nil-rate band to leave a property up to 500k to my child exempt from inheritance tax. But if I was married, I could leave a property worth up to a million.

So. I pay more tax on my income than two married people with the identical total income. And then when I die, my child has pay more inheritance tax on my property.

AIBU to think this is discriminating against single parents?

Actually OP. In a very stereotypical married couple where one earns a lot and one stays at home and looks after the children the couple pays more tax than 2 single people each earning half the high earner in a couple’s salary.
Ie tax on a 25 k salary x 2 is a lot less than tax on a single 50 k salary.

Which is how it should be - the more you earn the more tax you pay.

It disincentives single earner households but so do all economic realities. Running a household with two earn earners is always easier than running a household as a single earner. The same applies to households with one breadwinner and one SAHP.

The inheritance tax thing is the same. Each person gets an inheritance tax allowance.

Hmm. Newmumwithquestions, that is interesting what you said about a higher earner and a lower earner together. Hadn’t occurred to me that they would also be affected. I think I just look at it very simplistically.

If you are a family, whatever the setup, you have a total income coming into your family. This could come from one person, two people equally, two people unequally. From my (highly simplistic viewpoint admittedly) I guess it feels all those situations should pay the same tax.

But, agree totally that this isn’t what income tax is. Income tax isn’t paid on household income, but on individual.

Porcelain there is no good solution though. In countries where couples are taxed together the lower earner (usually a woman) is disincentivised to go back to work once children are born because so much tax is taken from that second income, even if it's only 15k, at source that the additional income has even less chance than in the UK if covering childcare. That leads to women not returning to work because it would cost the family money, and being really screwed 10 or more years down the line if they end up single, older and having been out of the job market for so long.

Not convinced about the inheritance tax though. That still feels wrong. The child of a single parent pays more inheritance tax on assets.

No more discrimated against than a couple with one working and one SAHP. The inheritance tax is slightly different as pp said. The property eg is often a jointly owned asset. So eg a DH dies and the spouse inherits, the DH IHT allowance applies but is deferred. The spouse dies then their own IHT allowance is applied along with the deferred DH IHT allowance. The allowances are still separate for individuals.

Yes it's much worse to be taxed as a single parent household than as a married household. I went to a bank seminar once and all the suggestions made about improving your tax situation were about making use of both personal allowances

Also what annoys me is that if I die my children have to pay tax on my estate. If I am married, my spouse inherits everything meaning the children are unaffected. They would pay tax when they in turn inherit but in most cases they would be grown up by then not (as would be the case if it happened to me now ) orphaned minors.

Oh and if you are married you can leave your house up to a value of £1m to your children. If you are not married you can't. Ironically this means that my dad, who left us as children and is remarried, would be able to leave his house to us tax free (he won't). Meanwhile my mother who stayed and devoted her life to caring for us and never remarried, can't. Unintended and crap consequences of a crap policy.

Judashascomeintosomemoney - I now totally agree!! Honestly hadn’t thought through that the issue with the income tax is about having one higher earner, whether you are single or married.

Inheritance tax...sorry...still think that is wrong. If you simply look at the effect on the child inheriting. A child from a married couple can inherit more from their parent’s estate than the child from a single parent.

Appleholic...the sweet spot surely would be half and half?

Porcelain but the chance of a child with divorced parents inheriting from 2 separate estates (each parent having a separate house to leave) is higher.

Inheritance will never be fair. Should tax be waived for children with loads of siblings? Your one child will get everything you have to leave. If he or she had been a twin he or she would only get half...

With the inhertence thing they are inheriting off two separate people.
Your child presumably still has a father that they potentially could inherit from. Doesn’t mean they will of course I know. But if you were to be given double the allowance it wouldn’t be fair if they then inherited from their father.
Inheritance isn’t a guarantee for anyone. I grew up with married parents. They are now divorced and my father has married a much younger wife. I do not expect to inherit from him because of who he is married to but i suppose the potential is always there so why should my mum get given a bigger allowance.

Yes porcelain I see what you are saying but the IHT is still the same for each individual person. I can see why some scenarios (like the one backing states above) seem unfair but I don’t really see how else it could be done. Each individual has the same allowance, but one necessarily has to be deferred. So the inheritors are not benefiting twice as much as such, rather each individual owner of the asset that has died passes on their own individual allowance. If eg a DH died and his IHT allowance had to be applied immediately there would suddenly be an awful lot of widows (possibly still with children at home) owing hundreds of thousands of pounds and becoming homeless.

There's a bit of unwillingness generally to accept that there are specific problems for single parents related to tax and the benefits system. It's almost as if the far greater likelihood of children of single parents ending up in poverty is a random coincidence rather than a fact of a single income exacerbated by unhelpful benefit and tax rules. I agree that these are difficult to adjust but the policy enabling married couples to leave a house worth £1m to their kids was just egregious.

FluffyWuffy, if we are all taxed as a single entity, rather than on income into the family, what about the extra inheritance tax benefit from being married? I'm no expert on inheritance tax but isn't it just deferred when it is a married couple? So you don't pay any when first partner dies but it is all added together when second partner dies. So if you die leaving £1,000,000 you get taxed on it, if a married couple died (before they changed to the IHT rules) then half of the joint assets were taxed on first partners death and then all added together again to be taxed on second death so they paid more. Isn't that how it worked? Fortunately I don't think it will be an issue for me!

Inheritance is so massively unfair anyway - the benefit always goes to someone who hasn't earned it, and it's barely more than a lottery which massively advantages some people and artificially raises house prices.

I agree with that cat

Daily Mail loves it though

backing that's interesting about single parent inheritance. My dc's don't have a dad to inherit from either.

I think you’re looking at it as the children inheriting ‘owe’ less IHT. That isn’t what it means. It is the ‘estate’ (or, if you like, the individuals that have died) that owe the IHT. Each individual person dying ‘owes’ the same amount each, which is as fair as it can be, it just doesn’t get collected til the last asset owner dies.

A tiny percentage of estates attract inheritance tax. My heart isn't bleeding for anyone who finds themselves paying tax on an unearned lump sum of more than half a million.

If you have a couple with one earner and one stay at home partner then you save hugely on childcare compared to a single parent. So no they're not worse off!

As a single mother earning over 60k I've lost child benefit but have to pay £1500 a month to work. Comparitivet that childcare is worth a 25k salary or about 50k on higher tax rates

The situation with my child is the same as for Backing - my child’s father is married and will leave nothing.

Although my views are clearly overly simplistic, I am purely looking at the practical outcomes. A married couple could leave their child a property that child could live in for the rest of their life. A single parent might not be able to do that.

Regardless of views on whether anyone has the right to inherit what they have not earned, that is an unequal system.

Perhaps....this inheritance tax issue could be addressed with changes to the nil rate residence band? Maybe this could have redressed the balance, allowing a single parent to pass on their main residence to a child.

My DH is a higher earner. Until fairly recently I was a non earner (even now I earn below the personal allowance level). As he is a higher earner I can’t transfer my unused personal allowance to him AND we have to pay back the child benefit I get on his tax return each year.

So no, the tax system does not discriminate against single parents.

No I don't think the tax system discriminates against single parents at all. But the benefits system is highly favourable to single parents. And a married couple are two people working. And a single person is one person working.