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!

Heard this being discussed on This Morning.

Not two people that I often agree with but even Tom Swarbrick and Vanessa Feltz thought that after paying income tax, plus tax on any interest earned via saving for the future and doing what you've been lead to believe is the right thing to then tax you a third time by way of IHT is just plain theft.

@concertinacornflake You have missed out a huge expense. Payments on government loans. This takes £ billions away from services. Taxes go on previous expenditure we could not afford and our dc will be paying the biggest price at this rate. They will be taxed to oblivion if we do not get growth and spending under control. So taxing the gifts we can give to help them is abhorrent. Yes, like many, we are trying to minimise IHT but pension savings are taxed, and if gifts were taxed, what’s the point in saving? The economy needs savers by the way. Savers invest in business and that’s vital if we want to see growth.

Am I being thick, because I don't understand at all.

The recipient of the inheritance pays a tax when they receive it? instead of the dead person paying it?

Surely in practice that is literally the exact same thing??

or am I missing something? I haven't slept much lately lol

The effect would be the same (unless you changed the tax levels) but the argument against IHT would disappear.

Nobody would be able to moan that people worked their whole lives only for their estate to be taxed in death, because that would no longer happen. The entire estate would be passed on tax free, and tax would only be paid by people who had NOT worked for that money.

Since the most anti IHT people seem to be anti IHT because they dont like the thought of 'freeloaders getting something for nothing' they couldn't really object to lucky gift recipients paying tax on their unearned gift because the alternative would be them becoming freeloaders getting something for nothing.

So you are saying an estate worth say 10 million left to one person would be taxed, but divided and left to 20 people or entities might not be taxed? (I just picked random numbers with no intention of arguing actual thresholds) I actually think this is completely reasonable.

It’s literally exactly the same thing
This is just mad

I don’t want to pay tax when I’m dead no
I also don’t want anyone who inherit it from me to pay tax on what I left them

WTF is the difference!

I mean, genuinely, what are you saying?! my head exploding?

when pensions become part of the estate, unmarried people who die near to pension age are going to get rinsed.

you die with a normal home for quite a large portion of the south in England and you’ve used up your allowance.

you’ve saved up £1m to fund the reasonable retirement as indicated by DWP. 40% goes to IHT. The rest charged as taxable income to your beneficiary. Potential rate of 67%!!

a lot more than 5% will fall into this!

I'll say it again. If it's already been taxed the government had had their share. VAT is paid on something you buy. If I buy a KFC I pay VAT. If I give you some of my Hot Wings, you don't pay VAT on it. Same concept with inheritance tax.

That’s the reason we’re getting married. Lived together 20+ years with young DS. Never fussed about marriage but can’t afford not to now.

We’ve booked a registry office with no guests. We’re not even going to tell anyone before or after as it’s purely a financial arrangement. The registrar said they’d had a lot of couples in similar circumstances doing the same recently purely to protect pension assets.

I really don't get the anti-IHT thing. 'I've paid taxes all my life so why should I blah blah?' As others have said, you'll be dead by then so you really won't care.

What we should all care about, imho, is the increasingly divided society we're moving towards, where people who inherit can buy nice houses and most other people can't buy a property, however well they do at work. I feel really worried that we're heading back to a Jane Austen world where a really important consideration when choosing a life partner is their 'prospects' ie likelihood of a decent inheritance. Meritocracy and social mobility seem to be under threat, and if they disappear, that is very unhealthy for society and will lead to serious problems.

[As an aside, I also hate the thing that people without children are treated as less worthy of passing on their wealth than parents. Why should a childless person with a very close relationship with a nephew or goddaughter pay more IHT than someone who's barely spoken to their children for years? Doesn't seem right to me.]

I get that it sets up bad incentives if IHT is at a rate of 100% for everyone - many people would blow all their dosh and wouln't keep enough for their elderly years. But here's my (maybe mad?) idea for making things a little fairer:

• Every estate, big or small, pays say 30% IHT.
• Everyone has a personal limit on lifetime gifts and inheritance. Perhaps £50k or £100k limit, so enough to make a real difference but not enough to disincentivize hard work and ambition.
• People can will their property to a list of people in order of preference (equal preference is allowed so equal splits between siblings).
• If someone on the list has already inherited up to the limit, they can't have any more and it goes to the next person on the list.
• Charities could have unlimited inheritance. Everyone would nominate at least one charity who could have any money left over after the list of inheritors was exhausted.
• There'd have to be a default list of relatives in order of priority for those who died intestate.
• I think there'd have to be exceptions for farmers who could prove a many-decades-long connection to their land, though.

Anyone who knows more about this stuff, why could that not work?

Yep this.

Hmmmm. So effectively you're just changing the name?

But anyway, I don't think that's what IHT objectors object to - "freeloaders getting something for nothing" - I think it's that they don't want to lose any of their wealth and want it all to go to their kids.

So I don't believe changing what you call it would make a difference. I think the IHT objectors are still going to object to their kids having to pay a tax on it. Because its literally the exact same and they can see that.

My own opinion? fuck em. It's a tax on the rich. The threshold is what, £300k and £500k if it's a main home? and then you only get taxed on anything above that? boo hoo.

And calling it this that or the other isn't going to change that. I can see that it's the exact same thing (even if I did doubt myself for a second there). It's likely to just annoy me that it probably cost a lot of taxpayer money to implement a pointless name change.

@DoggerelBank ”Why should a childless person with a very close relationship with a nephew or goddaughter pay more IHT than someone who's barely spoken to their children for years? Doesn't seem right to me.”

but they don’t do they? Because the estate is taxed.

”There'd have to be a default list of relatives in order of priority for those who died intestate”

I thought there were already was

Wrong wrong wrong.

5% of deaths create an IHT bill, not the same.

How is it theft? That’s just a ridiculous thing to say… it’s not your money it’s money you’ve been fortunate to inherit…by the good luck of being born either London or the south east of England where house prices are so ridiculous that estate has to pay IHT.

People would just start setting up their own bullshit charities

It would likely limit overall tax receipts as people would stop working earlier if they couldn’t give away additional income in a tax efficient manner.

This. Quite honestly if our kids aren’t happy with a share of £1 million tax free and 60% of anything over that, our parenting has been shit.

You’re not being thick
Nothing about this makes sense

Yes, actually, it's it per share as well? I may have that bit wrong.

So four kids, each share needs to be over the limit? is that right?

If so, double fuck em.

@OrangeFlower14 ”Why should a childless person with a very close relationship with a nephew or goddaughter pay more IHT than someone who's barely spoken to their children for years? Doesn't seem right to me.”
but they don’t do they? Because the estate is taxed.

There are different IHT thresholds if you aren't leaving things to your children. From HMRC "If you give away your home to your children (including adopted, foster or stepchildren) or grandchildren your threshold can increase to £500,000. [instead of the standard £325,000]

”There'd have to be a default list of relatives in order of priority for those who died intestate”
I thought there were already was
Yes, and that would need to continue. Sorry, just was just trying to think through all the ins and outs of how it would work.

Just looked it up, and I'm wrong, the threshold applies to the estate as a whole.

But still... fuck em. Hasn't the country got more important things to worry about than whether or not it's fair that someone who has just inherited four hundred sodding grand has to pay the governemt £20k?

Honestly more bothered about the people slogging their guts out and barely seeing £4

Maybe. But would the incentive be any more than now? Charity legacies are IHT exempt now, so if you're rich and hate IHT you could try to set up a bogus charity with the real purpose of keeping your heirs in funds. I presume (maybe naively!) that there are checks and systems in place that make that hard to do?

I am aware of people who already do that now. Not many, as it's obviously illegal and not easy.

But if you were to make it compulsory to leave a certain amount to charity, I think we'd see it a lot more.

You could introduce ways to stop it though, such as charities having to have been established X number of years, or from an approved list.

On the subject of not taxing the family home, this is just going to encourage people to stay in big houses, surely? Not a helpful incentive.