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?

Of course it matters. The house wasn't free so the owner has paid for it almost certainly using money that was taxed (income tax, CGT etc).

You are trying to pretend that a house bought for say £1000 in 1980 and now worth £5000 has around £4000 of untaxed 'profit'. My point is that if inflation has increased by the same amount then actually there is no profit to speak of in real times and in fact all of the £5000 has effectively already been taxed in real terms. Inflation is absolutely key to understanding real gains and not just nominal ones.

Speak for yourself. House price increase in value is 6% of my current estate value. The rest is savings and contributions to pension.

And that’s not allowing for stamp duty solicitors fees etc. which would reduce that percentage further. We don’t all live in the SE

Agreed. But the super rich can avoid it as per Hugh Grosvenor who inherited more than £8 billion and paid no inheritance tax. So it is a very unfair system I think.

HMRC is only interested in current value. Try telling them that £££££ is only worth £ and see how you get on. We’re living in 2024, not 1980.

My argument isn't about how HMRC calculate IHT, of course it used current values. My argument is that the point that you have made about untaxed and unearned wealth incorporated in house values must account for inflation otherwise the argument is completely flawed. You don't seem to want to acknowledge this and seem to think I'm somehow attached to the past. Inflation is very much party of our present and future. When inflation was running at circa 10% not that long ago it's easy to see how massive nominal gains can be made on assets but buying power also reduces and therefore real gains are minimal. It would be ridiculous to suggest during that year that someone had made 8% on their house value when inflation actually means they would have made a loss in real terms.

The REAL issue is the huge jump from zero percent IHT to a whopping forty percent on values over the relevant thresholds. That just causes reasons and motivations for people to take tax planning options to reduce or zeroise it.

It would be far better to start IHT liabilities with thresholds/reliefs at lower levels but then have a scale of IHT rates according to the amount of the estate in different bandings.

I.e. purely for illustration only...

O% on first £250k of an estate
10% on £250k to £1m
20% on £1m to £2m
30% on £2m to £3m
40% on estate falling over £3m.

That way there isn't the same "pain barrier" which is what usually causes people to jump through hoops to avoid paying any IHT.

As a result of the Budget, I've already had a few meetings with anxious clients, their solicitors and IFAs. These aren't farmers, but some people's estates are now facing a IHT bill of over a million when previously it was less than £100k, so the difference is massive. They were "happy" to pay £100k or less and weren't really taking any tax planning actions as the likes of trusts etc are expensive, but now they're facing close to a million, they're planning and will end up paying zero. So the "net" impact of Rachel's changes may well be less IHT collected as there's more incentive for people to take tax planning actions to avoid huge tax bills when they'd previously taken the view that relatively modest IHT bills were palatable.

As always, it's always the absolutely foreseeable consequencies which politicians claim not to have foreseen! They do it time and time again!!

Well yes, this would also be better for the economy. And would also mean younger family members structuring their own lives so they don’t rely on inheritance, just as anyone with less well-off parents has to do. I don’t see what the problem is with this?

Because a huge number of us will likely need some kind of care when we're older and we should be making provision for this. If we spend everything we have then who picks up the bills for caring for us in our old age?

It makes sense to encourage people to save in the hope they can pass it down to their beneficiaries but in reality it is also a good source of funding for themselves if required.

It also encourages people to work harder as they think there is a point to building wealth. This encourages entrepreneurship, wealth creation and economic growth. Someone has to take the risk and set up the businesses that we all rely on for jobs and money. Many many people are motivated by giving their children a better life and securing their future. It is damaging and goes against human nature to disincentivise people from doing this. Fears about generational wealth are often pretty unfounded anyway. Most research shows that the vast majority of wealthy families lose their wealth over a few generations.

This poster has an exH so there's no spouse involved so there's no transferrable allowance.
Unless I've got it wrong and it's different with dependent kids

Fair point about care, although if we had higher taxes/didn't fund wars in the middle east, we should really be able to fund decent care for everyone over the age of 85/with dementia anyway.

I disagree re the disincentivising point though. The people I know who are rich are either intrinsically motivated to work hard/have a passion or a talent (i.e. they aren't doing it for the money), or just want a lavish lifestyle themselves. Nothing to do with wanting to pass something on. The people I know who are aiming to leave something to family actually don't have all that much to begin with and are depriving themselves of any luxuries in order to pass something on - really sad and shouldn't be an incentivisation at all IMO. Plus these people won't be hit with IHT anyway, as nowhere near the threshold!

Who do you think should be paying these higher taxes? We already have a record tax burden and many younger people are struggling to build up any kind of financial security in the first place without being taxed further to fund expensive care for old people. Why on earth is it not better for people to have a bit of personal responsibility and to fund themselves? We know we will get old and we know that it's likely that we will need care. It is only fair and right that those who can seek to fund themselves so that the limited money we have can be spent on those that genuinely could never afford to pay for themselves and other key services like the NHS. You are much more likely to save if you think that any money left over will go to your heirs as opposed to the government. It's just human nature!

As someone that has a business and knows lots of other entrepreneurs, I completely disagree with you about incentivisation. Entrepreneurship requires such an immense amount of sacrifice and risk that it isn't just something that motivated and passionate people want to do for themselves. Lots of us believe we are building a legacy and something that will help further generations. It's what drives people to continue to grow the business and also the economy when we have already achieved enough to have a comfortable life. It isn't universally true of course but I would say it's a significant motivator for at least half the people I know that are really pushing their business, especially those who are older and already have enough for themselves. They are creating jobs and bringing money into the country. It is literally what we need to happen otherwise we will become ever more reliant on taxing a shrinking pool of people to pay for our increasingly expensive public services.

With regard to being able to pay i have had two relatives needing care. One in their own home at a cost of about 3600 a month. One in a care home around 4800 a month. The self funding relative had no choice where they went due to the severity of the care needs. How many people would not use up all of their savings?

I would like to give away as much as I can to my adult DC's while I am still young enough to see them having a good life, somewhere to live and not having to do too much overtime or take on extra shifts.
DH wants to hang on to it in case we need care as he thinks we will have a choice of the home or the carers. Well it didn't work with my DP's as I there were limited places that would accept them and the home carers first visit (self funded) was around 11am as no staff available. A friend's parent had council funded home care and got a much better service starting at 8am and any problems would just phone social services

My relatives care home is at least a half hour drive from their family home. There was no choice as nearby homes could not cater for the needs. It's a myth that you get more choice. This is dependent on availability of beds and the resident's needs.

It isn’t a myth for the vast majority. Most people are in care homes because they have dementia which pretty much every care home caters for. My parents had a wide choice and the one we helped them choose was perfect for them. I want the same and am perfectly happy to pay for it.

My relative has dementia

It’s clearly more complex if a bog standard care home was unable to deal with their needs.

Indeed it is but the fact remains they're paying a lot of money and they had no say whatsoever due to a combination of lack of availability and their needs. I didn't know there were so many levels of dementia until this happened. Not sure if that's the right terminology. But the fact is this could happen to any one of us. They are more than prepared to pay. But they thought they'd saved to get the best care. The home is actually very good but it would never have been on their radar due to where it is. On originally contacting other more local ones before they knew the severity, they were coming up full and the assessors wouldn't even come out as they had no space and they already had a waiting list.

This is a sweeping statement about the incentives of people who are motivated to generate wealth.

I can tell you that I will take a much more relaxed to my career if I did not have children. I am working hard to set them up and leave them something. As it is, they will have my assets early to keep Labour IHT mitts off (if Labour around for longer than 4 years).

It will have been nice to spend more time with dcs during their earlier years like many people on mn prioritise. As it is, I will just have to make do with paying for their homes upfront when they are in their 20s and 30s. Wonder how many future 'broad shoulders' will see the light and enjoy a more scenic route to retirement. There goes the future tax payers.

Do not underestimate how much tax shapes the behaviours of people with the ability to generate and protect wealth. The future also does not have to be in the UK. Not expecting any violins.

@blueshoes I don’t think there are many people who can pay outright for their children’s (plural) houses from just their earned income. If I’m honest, I think you probably should have gone for a better work life balance, plus spending the money would have helped the economy. In any case, that’s going to be a very small group, so I don’t think we need to base economic policy on it n

I’m sharing my money with adult DC now and will continue to do so - we are not in the bracket for inheritance tax anyway as only own a modest property worth around 250k

I gift the £3k money each year to DC and £250 to DGC. Then I gift them out of my regular incomings which is all perfectly legal. If my DS gets married I'll gift the maximum I can. I'll pay for their holidays too. I DH and I die together they'll have to pay IT. I just really hope Labour get kicked out and it gets reversed by whoever gets in next. I've also put 4 houses into a limited company and will be taking legal advice if I can just add DC and DGC as shareholders. Then I think they'd only pay 19 percent as they take money out. Not sure of what else I can do. I'll probably gift a house to both DGS's and hope to live 7 more years or not sure if Labour are planning to change it to 10 years. They'll have to pay tax on the rest, but I'll be leaving some to the Cats Protection League so that will reduce IT.

You hope what will be reversed? IHT hasn’t changed except for farms has it?

I'm hoping another party might lower it or increase the amount over £1m.

I'm all for hard work and having businesses and building things and not relying on benefits -but am also keen on having a society where public services function and everything doesn't come down to how much dosh you have- it's caused some real inequalities in things like dentistry , private renting, etc - and hence comments such as ' hopefully we will get rid of labour government and reverse things such as IHT changes- meanwhile I'm busily protecting my multiple houses etc - '.
nope , I cannot agree at all and that's precisely one of the reasons why we are in this mess and gvt needing to grab against assets to be able to spend out after sod all has been invested in recent years or spaffed on ludicrous ideological shit like Brexit.
otherwise you just end up with a non functioning country, sick people and a dog eat dog mentality - and yes I do think that whilst those with plenty have to bear the load and my heart isn't exactly bleeding at people like Rees Mogg having to pay more , I also think there also needs to be some work on looking at the benefit system and why it actually disincentivises a lot of lower paid workers, especially ones with children and renting.