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!

Mine wasn’t. Certainly not by me.

If you or I inherited money, how did we earn it?

That’s in effect what they do in Canada. No inheritance tax but there is the equivalent of capital gains to pay on death. There are various allowances (like our inheritance tax free allowances).

have to say I’m glad I didn’t have to work out all the capital gains when I was executor on an estate which paid a lot of IHT (mainly due to the increase in the value of a house bought in 1966 and sold in 2017). Value at date of death is a lot easier to work out.

5%? Thought IHT was anything above £325,000.00 that's more than 5% I think

It’s more like 7%. Not many, anyway. If you consider a married couple can leave £1 million between them it’s not really surprising.

I feel qualified to comment as have just paid an eye watering amount of IHT on my late father’s estate. Despite his telling me for years that his finances were all “sorted for tax”.
The bottom line is that I’m actually ok with paying the tax I’m due to pay (although absolutely no more than that 🙄). And I understand and kind of agree with the raison d’etre of inheritance tax.
When I eventually get probate I intend on doing a deed of variation to pass some of my father’s money directly to my children… if there’s time.
Otherwise I’ll just gift it and hope to survive for as close to 7 years as I can! If not the tax will come out of my estate (plus more IHT 🙄).
Im not entirely sure of the difference in your head between paying HIT and paying a tax on a gift?

This - in the current system gifting is untaxed at the time AND can reduce IHT liability, encouraging people to give money away well before they die & get it into the economy - take that away, there’s no incentive to give. What’s the good outcome of that? I can’t see one!

I think people who receive the money should pay the tax. In line with their income tax.

So if someone earns £12570 inherits £20000 they pay 20% tax on it. If someone is a higher rate taxpayer, they pay 40%.

if the dead person has an estate of £500000, if there are 10 recipients they each pay their individual tax on £50000. If there is one person who gets the lot, then they will be paying a lot of tax.

Young children would get a full nil rate band, so would benefit from a lower rate.

it would encourage people to leave money to larger numbers of people, which benefits the economy.

Husband and wife would still be exempt.

It would allow the cost of liquidation eg estate agents cost and cost of clearing properties, or auction costs. The tax would be on the recipients.

There's ways around it, anyway. Most married people who have more than £1 million to pass on would be educated and knowledgeable enough to make preparations to avoid whoever they're passing their wealth onto to avoid paying inheritance tax.

Much the same way you don't really hear about £1 million Premium Bond winners in the news, compared to those who win the National Lottery.

I'm sure, art, antiques, paintings, gold bullion (especially coins which are legal tender i.e. Britannias/Sovereigns), are conveniently left out in probate.

Even personalised number plates. Ever wonder why you sometimes see what are seemingly expensive ones on ordinary, normal cars?!

Those who have to pay inheritance tax, often means those who inherited from are unprepared.

It is NOT free money - it is earned, it represents not buying new cars, holidays or luxuries other people have, it represents a means to pay for your care when elderly. So what if you decide you would rather your DC got a boost after you die rather than designer clothes and fancy holidays when you are alive. Who are you to decide what people do with THEIR money?

Rather different odds.

I'm sorry for your loss.

Back to the tax debate... You describe what happened as you paying tax. But you didn't. The tax came from the estate.ie your dad. You may have filled in the forms or whatever, but your dad paid the tax. It may feel as if you paid it, but you didn't.

It seems unfair to me that your dad had to pay that tax after death.

It also seems unfair that his beneficiaries got a gift without paying any tax themselves. That's what happened. You may not think that, but it's true.

If, for example, your dad had left all his money to someone you didn't know (a long lost cousin, say), then that person would receive the inheritance without paying a penny in tax on it. By the same logic, you also received your inheritance without paying a single penny in tax on it. You got a tax free gift.

Under my proposal your dad would have paid no tax and you would have paid tax. The practical outcome in your case may have been the same, but in many cases it would be different. It would also incentivise people to leave smaller amounts of money to many people rather than large amounts of money to a couple of people, thus redistributing wealth.

Exactly. Which is why we should abolish IHT and let people leave their money to whoever they want, tax free.
But obviously if someone comes into a large amount of money they should pay tax on it, otherwise we would be in a situation where working for money incurs more tax than just getting given the same amount of money. Which is obviously unfair.

Or we cut government spending. There are an awful lot of people getting regular FREE money from government, not just in benefits but also in government funding in other ways. Including other countries.

None of it should be taxed. The money my stepdad has, he has earned and been taxed on. He also pays tax now on his savings. When he dies, tax will be paid on the inheritance we get. And then whatever we choose to buy with the money will also have tax on. It’s ridiculous.

Maybe we should cut spending. That's another debate. But even if we did, there'd still be a need for some tax. I can't really think of a better thing to tax than gifts people receive, since they have done literally nothing to earn them. Can you think of anything better to tax?

And yet at the moment we tax earnings quite a lot, and gifts not at all.

He pays tax on the interest on his savings, above a certain level. Not on his savings themselves.

When he dies, tax will be paid from his estate, and then you will get what he has left you. You won't pay any tax on that.

Say you got £100,000 as a gift in the will. You would pay £0 on tax.
If you worked really hard and earned £100,000, you would pay £40,000 in tax on that.

That's obviously the wrong way round, right?

I don't understand how you can't see it's the same thing 🤷‍♀️

So you think that his money that has been earned and taxed on, should be taxed again and again?

Because your parents, who worked really hard, should indeed be free to leave their money to whoever they like. But you, you didn't work really hard for that money, should pay tax on it.

That's how money works. I work in a shop. The money coming through the tills that pays my wages is put into those tills by customers who paid tax on it when they earned it. I am then paid it, pay tax on it, spend some of it in places that use it to pay their staff who pay tax on it, and so on and so forth.

At the end of my life I want to leave my money to whoever, without paying more tax, because I worked for it. But clearly the recipients haven't worked for it. So they should be taxed.

Not always

Glad she's thinking of the South of the country as Andy B is only worried about Manchester.
It's not people fault that if you live in the South, house prices are extortionate and therefore most properties would have a value above the threshold for IHT.
You pay tax on your earnings, on savings and when you want to give your DC a helping hand you are taxed again

If he is dead, it isnt his money any more. And you have never paid tax on it before have you?

I am not an AB supporter. I think the comment that AB thinks only about Manchester is not true, he had a philosophy and his policy reflects this, it is not Manchester driven. Interesting many govt policies and initiatives have been London centric. For example the money put into supporting schools and initiatives for disadvantaged children in London far outweighs what has been put in place for disadvantaged children outside the capital . You only have to loook at Middlesborough to see that some areHss as be been left behind