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?

My Dad was advised to set up a Trust. The accountant bungled it all a bit, or didn't explain things properly, and we (brother and I) weren't too involved at the time. After he died, we still ended up having to pay a fair amount of tax. I don't actually remember how it all played out exactly, it was a very difficult time. In short though, whenever I hear "set up a trust", I always tell people it's not that simple...

Effectively they do so not sure what your point is

Both sets of ILs will attract IHT and I have no issue at all with this. They both have small properties which are in london, we will still receive a lot of money that we didnt earn (assuming FIL doesn't date and remarry and leave to her!)

I will probably be tax eficient with my own estate but the wealth gap is widening and turning us into a two tier society, which isnt good for anyone

No it isn’t wrong to do everything possible to not pay it. It has already been taxed once. I don’t see why I should feel any guilt for avoiding it.

There's nothing wrong with managing your finances - which includes legally limiting tax liability - appropriately. More of us should take a more active interest in doing so.

As a concept, yes, I do think inheritance tax is unfair. However, given it's not going away any time soon, the actual IHT thresholds need to be revised, as does the entire IHT and probate process. At the moment, IHT has to be paid within 6 months of the date of death, and before probate is granted. Which creates huge problems for poorer people who, for example, may inherit their parents house, but no cash. You can't sell the property until probate is granted, and you can't even apply for probate until IHT is paid. This leaves people in the precarious position of having to get a probate loan (on which they must pay interest) / possibly apply for some sort of repayment plan (on which they'll pay interest) with HMRC. All this does is support loan sharking by another name. It would make much more sense if HMRC simply applied some sort of claim to the property for the full IHT amount, which they'd receive directly upon the sale of the property.

I really like this idea, massive rises in house prices only benefit those downsizing or inheriting, anything we can do to stop the ridiculous inflation in house prices has got to be good.

@taxguru the point of pension tax breaks is to incentivse people to save to fund their retirement, not snaffle tax free money away for their children. You have to pay tax if you take it as a pension so it is only fair people who inherit any pot not used also pay tax.

Honestly to contortions people will go through to justify not paying tax on unearned windfalls is hilarious.

My parents set up a trust after attending a financial planning seminar which put half the property into trust, plus the savings of the first to die. We ended up paying more in CGT, solicitors and financial advisors fees than we would have in IHT. It was only when our second parent died that we realised the advice we received when the first parent died was very cleverly worded.

I'm not wealthy by any means but I have a very modest property in London and together with pension this will push me over the limit. So I fully intend to give DC most of it as soon as they reach 18.
Then if I need to move on benefits or to have care it's going to be state funded. I'd rather go this way then to hand over 40% of my lifetime savings to the taxman.

Intentional deprivation of assets.

that's exactly why I'm going to do this pretty much on their 18th birthday whilst I'm still in middle aged

why on earth should you be taxed twice?

Unless you're planning on being resurrected to inherit from yourself then you're not.

It must be nice to be this sheltered and naive.

The country wouldn’t be in such a mess if people had a real world understanding of money and taxation, rather than a rainbows and unicorn view of how it works in reality.

Does this real world understanding just so happens to fit with your ideals on taxation by any chance?

I’ve heard it said that inheritance tax is an entirely voluntary tax.

As long as it's done long before needing care etc., it's perfectly fine. That's why you do it as soon as possible and don't delay. It's also better for the young people to have money when they actually need it rather than having to struggle and wait until middle age or later to get their full inheritance. Far better passing it down the generations sooner rather than it just being sat in a bank account earning paltry interest and losing value in real terms due to inflation.

Please oh great sage, tell us how it works ‘in reality’.

Oh dear.

Nothing worse than making a patronising answer that's also wrong.

The dead don't pay tax.

The people who inherit pay tax on the unearned income they inherit. But they don't pay it on the first (up to) £1m that's been bequeathed.

No-one is taxed twice. The person who was taxed the first time is DEAD.

Inheritance tax is not unfair. Inheritance is unfair.

No-one is taxed once they die.

Their beneficiaries are taxed on the unearned windfall income they receive through inheritance.

The estate of the deceased pays inheritance tax not those who inherit the subsequent reminder

My point stands , you do not pay inheritance tax if you are alive.

It’s a shame the people you’re talking about couldn’t be arsed to give their some of their money whilst still alive eh?

The way that inheritance tax is calculated proves that it is actually targeting the wealth of the dead, not those that stand to inherit. If it were the other way round, then everyone would have a lifetime limit regarding how much they could inherit or be gifted over their lifetime. This doesn't exist in the UK and instead IHT is calculated based on the value of the dead person's estate. It is therefore totally possible for someone to be gifted millions of pounds from several different people and not pay any IHT whilst someone that inherits a small amount from a large estate could be liable to pay IHT.

IHT is absolutely about taxing a wealthy dead people one last time. There is absolutely no reason why the system would be setup in this way if this wasn't the motivation.

If I’d have given my DCs their inheritance on their 18th birthdays I can guarantee it would have been gone by their 19th birthdays! 18 year olds aren’t renowned for their sensible life choices.

@Hoppinggreen

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
Beneficiaries are not taxed. Your estate is taxed.

@Bobbingtons

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.
The statistic is misleading as when one of a married couple with an estate over the threshold dies, the estate is not subject to IH. Everything passes to the other spouse. Those estates fall under the 'no IHT' group. Of course once the surviving spouse dies the estate pays IT

Fair is subjective. An estate under the threshold could finance dc with money for a house in the outer Hebrides whilst an estate over the threshold might not be enough to do the same for dc in London.

Yes of course. And this is unintended consequences I'm talking about.

I didn't want to do this. But still I'd rather my DC spend it on enjoying their lives whilst young then give it away to taxman. Btw so far DC are very sensible and I'm reasonably confident this will go to their education/property fund.

If Labour didn't add pensions to IHT pot I wouldn't be forced to do this but hey ho