Inheritance Tax

[Annabella92]

Is it wrong to try and avoid inheritance tax? Is inheritance tax itself unfair? Has your family taken any measures to avoid it?

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Send me £200 and I can teach you the one amazing trick I used to avoid paying IHT.

Nothing wrong with paying as little tax as possible. I keep thinking I should be giving money away to make sure I'm below the threshold.

I would set up a trust to avoid it and I’d encourage my parents to do the same.

why on earth should you be taxed twice?

No more wrong than the many other ways people ensure they reduce their tax bill.

Which pretty much everyone in Britain is trying to do in some form, even within the limits of PAYE.

But you won't be taxed twice, the people who earned it are presumably taxed and then the people who inherit it are - different people.
Having said that I pay all the tax I have to legally but try to avoid any more if I can BUT if I am getting free money I haven't worked for then I don't have a huge problem paying tax on it, its money I never planned for or expected

When I looked at trusts (a few years ago) they were expensive to set up and you paid quite a bit of tax on them too. OK for the mega rich, not sure about for us.

It's the amount you pay as well 40% seems very high, 20% would be more reasonable.

OP, are you running a school debate?

@twomanyfrogsinabox is it more or less fair than people paying 40%+ on earned income?

It's likely 40% has already been paid in tax so another 40% in IHT is 80% in total.

The majority of inheritance tax paid is for unearned income as a result of house price increases so isn't taxed twice. In addition without insurance tax it widens wealth inequality as it would lead to a wider disparity in home ownership whereby people who don't inherit can't buy property, but people who inherit do.

At the moment less than 5 percent of estates pay insurance tax. This is predicted to raise to 7 or 8 percent by 2033 so very few people are affected. This really is a non issue for the majority of the population.

I agree.

You say it’s unearned income but leaving your family a 3 bed semi in the SE used to be something that wouldn’t get taxed massively. It’s the same house now but the children often can’t afford to keep it and they need the money to buy anything of their own.

Although with defined contribution pension pots now being included there will be a lot more people sucked into inheritance tax. Basically any homeowner in London and surrounds who actually saved for retirement will be caught if they die around retirement age.

Not something we really needed to think about until the changes in the budget regarding pension funds. Now we might have to consider spending it or giving it away to DC and cross our fingers that we live another 7 years and don't need care in our later years.

I disagree with the principle of it, but bearing in mind the state of the country’s finances, I can stomach it for now as I can’t think of a better way to plug the financial gap abolishing it would create.

Well - it isn’t actually.

Most people’s wealth is property value (the inflation on which is entirely untaxed) and pension, which is typically saved pre-tax too.

So some might have had tax paid on it, but much won’t.

I think its shameful. Punishing the people who carefully saved and looked after their money and wanted to pass it on to their family. They've already been taxed on it when they earnt it.

Better off spunking all your money up the wall or buying expensive presents for everyone whilst alive.

Except you’re not taxed twice…

Bit irritating that we’re engaging with an OP who gives no opinions of their own. But for what it’s worth I am literally looking at this at the moment.
I am separated but have drawn up a will to leave everything to DC instead of ExH. It means they’d have to pay IHT. Wouldn’t be able to stay in the house. Not enough to split and get places of their own. If I live long enough I’ll look into avoiding it.

I don’t think it’s particularly unfair. Less than 4% of estates pay inheritance tax, so it’s a pretty niche issue and only affects wealthier members of society. It’s arguable that the nil-rate threshold should be increased to account for the huge increase in property prices, but the idea of IHT as a whole doesn’t bother me.

Avoiding it by legitimate means such as gifts made more than seven years before the gifter’s death are fine imo. Dishonest schemes are not.

I have life insurance to cover it so DC wouldn't need to pay it and can benefit if I die when they are young. Shall reassess in about 20 years time when they are adults as to what makes the most sense then

but thats after the first tax free part

There is nothing wrong with trying to avoid any kind of tax. Most of it is wasted anyway.