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!

Yip. I like Kemi but this is another headline grabbing policy which sounds “fair and good” to the hoi polloi but changes little in reality.

The Duke of Westminster (in)famously paid no IHT on his £9billion plus estate as his financial people made sure his wealth was held in family trusts rather than held personally. Most people with vast amounts of wealth will do the same. If you don’t then that’s on you.

You might get the occasional long lost aunty who has 100 cats in her £2million pound pad but no contact with relatives, who doesn’t “protect” her wealth. But then, if I inherited like this and had to pay IHT, I wouldn’t complain because it would be an unexpected windfall.

The OP's suggestion would not change anything so I don't understand her point, as the tax would be the same if it paid by the recipients or the estate is paid out after tax (assumig the estate is over £1m for a married couple)

What I don't get is why people feel inheritance tax is unfair. I cannot see anything unfair with it as most taxed inheritance comes from property which has increased in value due to changing market conditions and has nothing to do with what earnings or savings.

If DH and I were to die this year, we'd be leaving approx £1.8m in the value of our home, so there would be tax on £800k of that. We bought the house for £350k. We have extended and refurbished, and there is appreciation in line with inflation, but I would still say half the value of our home is an overinflated property market. That isn't money we have earned. It isn't really ours, and I would happily see a chunk of that go to the treasury to help fund services in the years following our deaths.

Because if I have worked all my life and paid taxes, my property and money are mine to give to whoever I choose. The government should have no part of it. They already got their share.

How is this different apart from the terminology?

If I die with an estate worth £2million which is all in cash to make the calculation simple, then the estate is taxed £670k and £1.33m is passed down to my heir, John Smith. The estate is taxed, not John.

In your system, my estate is not taxed but John must pay £670k tax on the gift he has received and so ends up in exactly that same position as before?

Or is the intention in your plan to encourage me to leave smaller amounts to 250 people who each receive just over £5,000 and none of them individually need to pay a tax?

The difference is in perception. IHT is hated because people (rightly IMO) object to paying tax in their estate, because they worked for it. But who could object to someone paying tax on a massive inherited gift? They didn't work for it.

This would encourage some people to work less and therefore pay less tax.

If you’re a high earner and a relative died in May leaving your a large gift. You would possibly make the decision to work for the rest of that tax year to avoid paying tax at your marginal rate on it.

It's not 'effectively paid by the beneficiaries'. It's paid by the estate, which seems unfair because the dead person worked hard for that estate.

Recipients pay no tax now. That also seems unfair. Under a gift tax they would. That seems fairer.

A lot of it is about perception, but it would nonetheless be a big shift.

Maybe they should. We tax earned income. Why not tax unearned income more, so that maybe we can tax earned income less?

Abolish inheritance rather than inheritance tax. It should all be taxed at 100% as far as I’m concerned to redistribute wealth throughout society and pay for public services and house building. I’d be happy to forfeit my inheritance for a fairer society.

I have a lot of sympathy for this view. Which is why I propose scrapping IHT.

However, recipients havent done any of the work that you did. Which is why I propose taxing them instead.

Terrible idea and shows that Kemi is only focusing on the wealthy, London and the south east of England..

I don't get why everyone is so down on IHT.

For a start hardly anyone has to pay it anyway, only the top 4% of estates.

And secondly WTF is all this wanging on about "I've paid tax all my life, I'm not happy paying tax again on what I leave to my family" - well no, you'll be fucking dead and dead people don't pay tax so it's not really going to be a problem to you is it?

(Disclaimer: I'd consider myself incredibly lucky if inheritance tax was even on my radar of "shit to worry about when I'm dead")

It’s the same thing. People who whine about IHT would still whine.

I wish more people knew this. It’s talked about in such a way by the tories to give the impression that your average house is going to be lost to tax and not passed to your children when you die. It’s very misleading.

Does the maths work out the same?

It sounds really complicated. What if you only have one child and you’re leaving your estate to them?

I agree. As a centrist I like some things about Kemi but this annoyed me and reminds me what the tories are really about. Not a good move.

Well it obviously affects the editors of the Excess and the Fail or they wouldn't be so obsessed about it. Plus I don't give a fuck if Clarkson and Dyson are hammered. Same old Tories help the rich, sod the rest of us.

Then they pay 40% tax like now. But it's them paying as the recipient, not the dead person paying.

Supporting a third runway at Heathrow also illustrates this too - I was reading an article a while ago that suggested Heathrow expansion could reduce passenger numbers and aviation jobs at some Midlands airports, particularly Birmingham.

But their whines would surely make a lot less sense.
At the moment they whine because 'Inhave worked all my life and now have to pay tax when I die!'
But in future it won't be them paying. It will be their lucky recipients who haven't done the work.

The wealthiest easily avoid it
So ... the 31,000 or so estates that paid IHT in recent years were NOT "the wealthiest" (?)

£8.5 bn raised from IHT in 25/26.
If the £8.5 bn came from 31,000 estates, that's about £274,000 each.
Elsewhere I read about £212k as an average, but my guess is median is much lower, maybe £50k or so. The page linked to below said something like that for wealthy people, inheritance is normally << 10% of their total wealth.

this page is full of interesting statistics about IHT.

It’s not them now. They’re dead.

Well yeah. But same goes for lots of other things. VAT for example. Why is this one different?

It's the same thing.
Estate pays £100k it and recipient gets £500k
Estate pays zero and recipient pays £100k out of their £600k.
Obviously not real numbers

It would be no different. Whether it's paid by the estate or taxed from individuals, the end result is the same.