Inheritance tax in anti-Labour

[iphi48h]

In expectation of the budget it got me thinking - why isnt Labour aiming to tax those who have trusts and are substantial asset rich rather than grandparents who live in London and are cash poor but own their hose. Is it because it's easier or because they dont actually want to tax those who really are asset rich?

Most of my friends whose parents were working class or lower middle class barely have any savings but do have a house in London (we all live in London). Most of my friends whose parents were always middle class have multiple pots of savings, properties and very good accountant - so they will never pay the inheritance tax.

We all live in London and unless you have help from your parents - it's very hard to buy a property. I think a lot of my friends do expect some inheritance from their parents to pass to the grandkids to help them buy a house. But the difference is that those who have always been middle class will be able to do that, those who basically dont have clever accountants and family experience of managing wealth will be taxed. Is that fair? Are we basically taxing people without clever accountants? Why not go for the trusts and clever financial schemes if you want the true middle and upper classes as well as large funds to pay up.

Owning a home is being asset rich.

They're rich enough to generate significant wealth for the treasury and not mobile enough to up sticks and fuck off in protest.

Yes, but as a result they are essentially only going after lower middle classes who didnt figure out to get an accountant. Effectively, it means they are pushing the working classes/lower middle classes who havent figured out how to manage their finances back to being poor - whilst the middle classes soldier on. All of my truly middle class friends have family accountants not just personal ones - i.e. those are the people who have always had someone else managing their finances. It basically means Labour are accelerated the financial asset stripping of the lower middle classes whilst leaving the rich standing.

I don't know anyone who has an accountant and all my group are six figure upper middle class folk. We all do our own tax returns as PAYE.

I think the truly wealthy have accountants. But they aren't earning on PAYE. Most "working people" yes, Labour, they are working, still pay tax through PAYE, even on salaries above £100k.

You need to look at your definitions if you think owning a home, mortgage free, that’s worth over £1million doesn’t make you ‘rich.’

I know of at least four people who definitely pay tax but their parents have put their wealth in trusts. All my friends pay regular taxes - the point is their parents have essentially ensured they never pay inheritance tax.

I also do think that having 1 million pound makes you rich. But the assumption is that labour will get rid of that clause and tax on 500k. Which doesnt make you rich but in London means you have a 3 bed house in a pretty shitty area that certainly doesnt make you middle class. My point is that Labour should make much more effort to tax people who are asset rich at say 2million mark and trusts/investors who are 2million and above. We dont tax the true rich enough

It is possible to be asset rich through a trust and still be cash poor. And trusts are taxed.

"It basically means Labour are accelerated the financial asset stripping of the lower middle classes whilst leaving the rich standing."

Even without doing any planning at all, a married couple can leave up to £1 million free of inheritance tax (IHT) to their children.

If you think that the "lower middle classes" are leaving estates worth over £1 million then I think that you might be living in a bit of a bubble.
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"Most of my friends whose parents were always middle class have multiple pots of savings, properties and very good accountant - so they will never pay the inheritance tax."

You're mistaken.
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"Why not go for the trusts and clever financial schemes if you want the true middle and upper classes as well as large funds to pay up."

Trusts (with some exceptions) are already required to pay 6% tax every ten years and there are additional charges on trusts as well.

The "clever financial schemes", as you call them, include things such as being a farmer or owning a family business. There have been hints that these exceptions may be curtailed in the budget.

You don't even know what Labour are going to do yet.

If working class/lower middle class people in London inherit a house from their parents, they can inherit up to £1 million (as long as the estate includes a property) without paying inheritance tax. Surely that's enough?

Surely we should be hoping that the loopholes that allow super wealthy people to avoid inheritance tax will be closed, rather than hoping that working class and lower middle class people can also avoid inheritance tax?

You are falling into the trap of thinking that the 'true rich' are just people that are richer than you are. It's obviously hugely subjective and how 'rich' you are and feel can vary hugely depending on where you live in the UK and how you manage your money.

Those who have estates of £2 million plus end up paying a premium when it comes to IHT due to the reduction of the nil rate band. Of course you can put money into trusts to avoid this, but this money is taxed at the point of setting up the trust and can be taxed every 10 years. I think you misunderstand the complexities of estate planning.

I also think that you have to realistic and accept that estates worth £2 million + are not plentiful enough to raise the money that the government needs. There is also the risk that those with these kinds of assets will choose to leave the country rather than lose millions of pounds to the government on their death. It makes sense that estates of a decent size fall under IHT rules and that the rates stay sensible so that people are encouraged to be financially prudent in their lives and those with large amounts of wealth aren't incentivised to leave the country and shield their wealth from taxation.

The very wealthy and those whose wealth has passed down through the generations do have accountants and trusts to protect that wealth. It’s always been the way. For every person involved in trying to close loopholes in tax law there will be a hundred people trying to find new ones. It’s a constant struggle but those people are taxed.

the assumption is that labour will get rid of that clause and tax on 500k. Which doesnt make you rich but in London means you have a 3 bed house in a pretty shitty area that certainly doesnt make you middle class.

It does mean you have £500k though! If someone lived in a rented flat and had £500k in various accounts would you think it’s unfair to expect their estate to pay tax on that?

I'm not sure about the faming thing. (Don't have a dog in this race, I can't walk by a field without reaching for antihistamines) But, is it wise to levy inheritance tax on the land that increases food security for the country? I mean, I expect it becomes completely unviable venture if you are lumbered with an exorbitant tax bill - given the size of profit generated from a farm. It'll just be sold on to a property developer to shake off the debt.

I don't know, maybe I'm missing something?

My main concern is that grandkids of the lower middle classes Thatcher kids who bought their house in the 70s/80s - will never be able to buy property in the South East. In practice, we will be back to more people renting but this time in insecure rentals as council housing is unlikely to reappear. Instead assets i.e. houses will increasingly be bought by those who are already asset rich.

I dont know anyone who managed to save a deposit for a house in the South East/London - it was through inheritance. My concern is that the 'wealthy' lower middle class will soon end up with very 'poor' grandkids. Which is fine but actually that only serves to accelerate a major social shift away from owning towards insecure rentals.Yes, we already see this in London but it will only get worse.

Remind me again how much IHT was paid when the Queen died?

We need secure long term renting. I absolutely agree about that. That’s something that the government can and should address. The damage done by Right to buy is still being felt.

While they may not necessarily pay IHT, the trusts will be subject to other taxes that could be just as onerous.

First off, if the parents die within seven years then any assets put into the trust are still counted as their own and so will be counted for IHT purposes.

Secondly, any assets put in trust that are worth more than £325k per person are charged 20% at the time they are put in trust.

Then, every ten years the trust will have to pay 6% of the total value in tax. There are also charges when an asset is removed from the trust after ten years.

Then there is capital gains tax. This can be postponed for quite a long while but will eventually have to be paid (in most cases) based on the value of the asset when it first went into the trust.
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All of the above applies if you put shares or a rental property etc into trust. What happens if you put the family home into trust?

Well, then the parents will have to pay the trust a market rent to stay living in the home or it will still be counted as belonging to them for IHT purposes. What's the current market rent on a £1 million home in London?

The Trust then has to pay income tax on that rent. Also, any increase in the value of the home will be subject to CGT when it is eventually sold and the estate will not benefit from the main residence nil-rate band so a married couple can only leave £650k instead of £1 million free of inheritance tax.

All in all, trusts - on their own - are not generally speaking a get of jail free card when it comes to IHT.

And owning a home in London is doubly asset rich, with the added advantage that having a parent with dementia won't absorb the entire value of the house.

Even if inheritance tax is raised to affect more properties the beneficiaries still end up with significant wealth

I mean suppose the threshold is changed so that someone who would have inherited 500 k now ONLY get 300k - it's not cry me a river territory is it? Hey even if they had to share it with a sibling , I am still finding any reason to think "oh poor person"

That person is still substantially richer than most people in the country because of their hard work ... no hang on that's not right ... the hard work of their parents ... no that's not right either .. because they hit lucky with house price inflation.

But for example why not levy capital gains tax on the value of the second home i.e. not on the sale but ownership of it on an annual basis. You have that elsewhere in Europe. That means you are liable to pay 20 or 40% tax just on owning a second property.

Most of those with £1 million houses didn't pay anywhere near that for them or indeed pay tax on their asset when they die (IH tax being a liability for the beneficiary).
We live in the Midlands in the same house we bought 30+ years ago. Cost £90K, Current value £350k ? No tax paid on the increase in value. As it stands, with pensions, savings, inheritance from my parents, we are within the current IHT limit if we leave everything to each other then to our DS (which we hope won't be for another 30+ years) but if the limit is reduced, most of what the estate will be taxed on is our savings and investments (other than our house). How is that fair? Far better to charge IHT on massively increased house values which were never taxed or earned.

So the 90K you paid in 1994 would now be worth around £250k in real terms due to inflation. You have essentially made £100k in profit over 30 years and the bulk of the rise in the nominal value of your house is simply keeping you apace with inflation. Would it be right for the government to treat the whole £260k as unearned wealth?

I think it's important to highlight this as ignoring Nil rate bands and IHT thresholds, if you had to pay 40% tax on the value of your house it stands then you would actually have less money for your children to inherit than what that £90k would be worth in today's money.

@Bumpitybumper and if we look at housing inflation - then you are definitely passing on less - though that varies quite a lot regionally.

Because it's easy. Like cutting OAP winter fuel payments.

My main concern is that having privatised everything in this country e..g housing, care etc - the system actually rellies on these assets to keep going. There is no secure safety net to catch you if you fall - unlike in the post war period. Very happy to increase IHT if we also have secure rentals or housing, if public sector pay goes up with inflation as a point of principle.