Abolish IHT entirely but replace it with gift tax

[Laptopfangirl]

Inheritance Tax in the news again today after the Tories pledge to exempt family homes..

It's always such an unpopular tax, and I get why - it does seem unfair to pay a tax on your assets when you die (even though, I know, most estates don't pay anything).

Of course the opposite argument is that it's unfair for the recipients of estates to get rich off the backs of their parents.

So I wonder if it would be unreasonable to abolish IHT and tax gift receipts instead. So instead of the estate paying tax if it's worth a certain level, the dead person can leave it all tax-free, and tax is only paid by recipient's if they receive a gift above a certain level of value.

That way the dead person pays no tax (which seems fairer) and also the lucky gift recipient does pay tax (which also seems fairer). If you set the tax level at the same marginal rate as income tax then if you split your estate so that nobody got more than £12,750, nobody would pay tax at all on their gifts. This might encourage proper redistribution of wealth.

Am I being silly? I'm sure there are many reasons why this wouldn't work, but I'd like to hear what they are so that I can stop thinking that this is a good idea!

Because on MN people are "lucky" to have money - the effort made is not counted : the studying, the long hours, the work travel, the impact on the family, the where you live etc. You're just " lucky". How many times do we see mothers on here complaining about their partners working long hours . They want them home at 5pm! Sorry but you don't get the financial rewards with some jobs. I've lived in conditions where people have told me they wouldn't. 🤷‍♀️ that's part of the reason why I have a good pension pot now. But yeah I'm just " lucky".

Interesting range of responses. I don't buy the 'taxed twice' argument but even if I did then surely it's alleviated by my proposal (although admittedly not alleviated as much as would be the case if IHT was just scrapped full stop).

Full disclosure - under my proposal I would end up way worse off than now. When my parents and in laws die i stand to inherit the best part of £1m, a sum not reduced by a penny by IHT before it reaches me. This outrageous good fortune is not due to my hard work or effort of any kind, just the good luck of being born to my parents (and marrying my DH who was born to his). I am firmly of the view that we should have a system where 40% tax is paid on that, just as if I'd earned it working. I'd still be left with £600,000 despite having done nothing to deserve that money.

My DH and his siblings inherited their father’s home and death in service payment via his partner of 20 years who died 18 months later. The government cancelled their wedding during Covid then taxed the shit out of their kids when they died unwed in a tax inefficient order (FIL had 3 DC, his partner had 1).

Their estate, combined worth less than 500k, went to their natural children, but was subject to inheritance tax because they were unmarried.

I get annoyed when people say it’s just for the absolute very wealthiest people.

Indeed. And there's always the option of giving it away earlier, rather than hoarding it into your 90s. I actually think it's a good wealth redistribution mechanism. If you don't like the idea, then spend it sooner!

The one thing I do think needs to be reformed is when it has to be paid. If you haven't liquidated the assets in the estate I can't see how you can possibly afford to pay the tax. Yet you only have six months. That needs to be reformed.

Also, they were only able to pay the IHT because of FILs death on service payout which his partner had hardly touched. Otherwise they would have been in debt while probate took its own sweet time and the house just sat there empty, unable to be sold.

I actually think that's a lot more complicated. If I give my son £500 for his 18th birthday how is the taxman going to know?

Maybe what we need to sort out the care issue is for everyone to pay 10%. And the big estates could still be taxed at 40% - as I said above, I think IHT is a tax on hoarding, so don't hoard and you won't pay it. I find it ridiculous that people die with millions in the bank and their children are still renting!

Why don't you make a donation to that tune when you receive the money. Nobody is stopping you.

32,000 people pay IHT each year.

The whole taxation system in the UK is in a mess. I would suggest that with the advance of (credit & debit) card spending, 85% of retail transactions, that a transaction tax on all bank debits and credits would easily replace all other taxes. At a stroke a lot of the tax evasion and avoidance would be erased.

There would obviously be a minimum amount set way higher than £500.

With inflation running at the level it is, and no signs of the government doing anything to control it, this will soon be 10%, especially if you live in the South East. I dont mind paying inheritance tax, I will be dead, but how will the average family grow their wealth over generations, if whenever it gets to a certain level, they lose half in tax? The elite have already built up their stash, why not give the rest of us a chance?

I will abide by the law. One can play the game whilst still wanting the rules to change.

No its not. MY home is worth about 600k after living in it for many years. I have a pension find of about 150k which gives me a modest income for the next few years. I would be hit by IHT and Im far from the very wealthiest

I have some sympathy for the argument that some people save and some people spend. Why should the savers be penalised? I'd prefer an increase on income tax so that everyone would pay their fair share relative to how much they (truly) earn. However they'd need to close all the loopholes which allows people in the know to avoid paying appropriate tax in the first place.

According to the ONS your £600k housing wealth puts you in the top 20% of wealth. So not the very very wealthiest but comfortably in the top quarter.

You may not feel wealthy, especially because of your modest income, but you are a lot healthier than someone earning a lot more (but who doesn't own their own home). Seems reasonable to me that if you passed your sizeable wealth on at death, the recipient of it should pay tax on that lucky receipt.

You would prefer to tax earnings more instead of unearned inherited money?

inherited money is earned.

The law allows you to make a donation.

Communism isn’t the nirvana you seem to think it is.

So basically you just want access to what other people have worked for both from your family and from strangers.

People should pay 10% on everthing and then another 40% on everything that is left. What is your contribution? Grasping hands?

It’s not per “share” it’s per estate. So if you have 1 or 12 dc it makes no difference. It’s not up to £1 mill per family member.

I don't have enough to involve IHT but every penny I have was earned and taxed.

In my experience those that should be taxed but aren't tend to be those that have accountants that magically enable them to avoid paying their fair share. These are often the same people who seem to manage to set up trusts for their children to avoid paying IHT too. Close down the loopholes and tax them on earnings. If they genuinely pay their fair share then they can spend (or not spend) whatever is left how they like.

Because wealthy people cannot stand the thought that their children wouldn’t automatically be wealthy too just for winning the birth lottery. Meanwhile it can take multiple generations before a family from a council estate can actually get some upward momentum and become upper middle class.

Inheritance tax is great, the vast majority of people pay absolutely nothing, those that do pay can afford it, after all it is just a percentage of the free money they’re getting. Then it can pay for services that the country absolutely needs in order to function.

I think of all of the taxes, this is the one that actually feels like the right people pay at a proportional rate, as many others leave the lower middle class being charged disproportionately (higher rate income tax anyone?). And the thresholds allow the working class to pass on their ‘wealth’ and help get their children/grandchildren to gain a little social mobility because their finances aren’t trapping them disproportionately anymore.

Are they at death's door, if not it could be changed umpteen times before they die, or they could need care and use it up and as PP said, you could always make a donation

Also…anyone against inheritance tax because they’re being penalised for being savers…NO! You aren’t being penalised because you will be dead, your children are just inheriting marginally less free money, if you want to say they’re being penalised then I’ll remind you…FREE MONEY