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!

Especially when the original will becomes invalid on re-marriage, which, sadly, a lot of people don't realise, or they intend to write a new will but just never get around to it, meaning estate passed under intestacy rules instead of what the original mirror will prescribed. Or the original will gets lost/forgotten after the death of the first spouse and the beneficiaries/family can't find either after the second death, especially when often probate isn't done after first death if all assets are joint (or small bank balances etc) and pass to the surviving spouse without the bank etc requiring sight of the will/probate, or in case of a jointly owned home, very few married surviving spouses would go through probate as there's simply no need with the house passing on death due to joint ownership. (Hence also the importance of knowing/understanding the difference between tenants in common and joint tenancy - so many home owners don't even know which applies, let alone the difference!).

We've got will trusts and I always tell my clients to get will trusts drawn into their wills. I've seen things go wrong far too many times.

Tbf you brought the judgement.

In what way? By trusting my spouse?

It need not even be deceit or greed. Things change and life moves on without the passed spouse. What was once true, and a priority isn't so much after a few years have passed.

financial idiocy of remarriage.

Ring a bell?

You don't innocently divert an inheritance that you knew was meant for others.

Well at our age and stage of life it would be. Context is all.

It often happens accidentally, i.e. upon remortgage, the surviving spouse forgets that the old will becomes invalid and upon their death, and the intestacy rules apply instead.

OP, you are splitting hairs. The net tax effect is the same and no one is buying your perception angle. The general public wouldn’t either.

Well I mean several people on this thread 'buy my angle' so whilst I appreciate your opinion it would be foolish for either of us to assume we are talking for the public at large.

And the net tax effect needn't be the same. The dead person could choose to leave their estate to lots of different people so that none breach the tax threshold. So if someone leaves £2m now, they pay lots of inheritance tax no matter what. Under my system if they left £2m equally to one or two people (or four or five, or some other small number) those recipients would pay tax so that in aggregate it would be the same as before. But if they left the £2m to 100 people nobody would pay any tax at all. And rightly so because that level of redistribution of wealth is a good thing.

That's not very realistic though is it ?

No, but it is more realistic than it would be under the current system.

My proposal isn't perfect, not does it strive to be revolutionary in terms of outcome. It is just intended to be a nudge in the right direction.

That I find 100 people to leave me assets to - why?

Why what? If you mean why should you be encouraged to leave your assets to more people, the answer is because redistributing wealth rather than handing it down to very few people to become ever wealthier creates a more equal and cohesive society.

Oh no, fuck that 😂

No. Its my money, I have earned it, I get to leave it to whom I want, not some random 100 people who I know nothing about, and have no connection to. We are not a communist state, what is mine, is not yours, and what I have achieved doesn't get redistributed randomly. You may as well throw me out of a window, and seize all my assets.

There would be incentives to redistribute the money widely under my ideal system. But it wouldn't be compulsory! And if you didn't want to do it, that's absolutely fine. Leave it to whomever you choose. You worked hard for it. In fact, we should abolish IHT so you don't need to pay tax on your estate when you die because, as you say, you earned it.

The people you leave it to though... They didn't earn it. So I reckon they should pay tax on it.

I got 40 from the tax man today 😂

Australia treat assets the same in life and in death. hen most assets (except the family home) change hands they are subject to Capital Gains Tax. Thus, the ordinary family with a home that represents a life of dedicated working mortgage payments generally pay little or no inheritance tax, but the person with a large portfolio of stocks and shares or a holiday house will pay tax on the increase in value of those assets when they are sold or change ownership. It is a sensible, cost-effective way of administering asset taxation. It also means that grieving families do not have to face having their loved one's possessions valued by a stranger coming into the home to look at their stuff, so it is humane too.

The people who are affected by IHT are objectively wealthy. It is right in my view that a portion of their estate is taxed. It is also possible to mitigate exposure with IHT with some careful planning, as there are numerous ways to reduce the estate. No personal interest in this - the Tory policy would likely benefit me significantly but I don't think it's the right thing.

I do think there should be an exception which applies where adult children are dependent on the person who died though due to a profound mental / physical disability and the tax would have an impact on their care.

I do think that the problem is that a lot of people do not realise that only the top few percent of estates pay it. A heck of a lot of people worry that their house automatically puts them into the IHT bracket. That is why anyone saying IHT will be removed is a HUGE vote winner amongst the worried, stretched, middle.

I do think that the problem is that a lot of people do not realise that only the top few percent of estates pay it. A heck of a lot of people worry that their house automatically puts them into the IHT bracket. That is why anyone saying IHT will be removed is a HUGE vote winner amongst the worried, stretched, middle

This is changing though, with pension pots being included in your estate. If you are a civil servant on a lovely large government scheme, great, no issue. If you are not and have had to save for your old age, those years of saving are now going to be taxed by IHT and after age 75, by your children too. The effective tax rate will be 80 odd percent.

Yup, I don’t think people have realised the impact of the iht pension changes