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!

Yeah. Maybe it would need to be more people than that (say maximum £50k per person or something) but yes. That's the idea.

I have a large pension amount. Under current rules that will be taxed at 40% along with my savings before my estate is settled when I die. The recipients of my pension will then have to pay tax on it as and when they withdraw it at their current rate of tax. It's daylight robbery.
My plan therefore is to currently draw out much more than I need on a monthly basis and yes part of that is at the 40% tax rate. I will keep the extra in cash and give it away to them so only one lot of tax paid.

The difference is that you have every right to suggest what happens to your money when you die. But you have no right at all to suggest what happens to it once it's no longer yours.

It's no longer yours when you die, by virtue of you being dead.

Classic Tory move. It will only affect people who have a lot of money, or single people. The existing -ie current- rules save almost £1 million from the tax man. Badenoch is appealing to people who have more than that.

A famous author once wrote that it was crazy the lottery isn't taxed, but people are taxed on earnings they've already been taxed on, when they want to share with family.
And remember, that family might have additional needs/disabilities etc, so why shouldn't they give them money, in an attempt to make their lives fairer?

Daily Mail readers frothing at the mouth and pledging to support Reform because they think they’ll have to pay IHT on their average £300K house. They’re the types who’d be very offended if you pointed out that they weren’t wealthy enough to ever pay IHT.

People keep saying only 5% of estates pay IHT but given the threshold is £325K many estates will incur IHT especially given house values nowadays

You can add £175k per person for the value of your house. It brings the total to £1 million per married couple.

I could be wrong here but I thought IHT had to be paid within a certain time? If the inheritance is a property doesn’t the beneficiary have to pay the IHT before they get the ‘unearned millions’ if the property is difficult to sell?

If you leave everything to your spouse it is free of tax. The problem arises when there's only one of you. If you leave your house to your children or grandchildren the level is 500k before tax kicks in. Panama is correct about house values in many parts of the country.

Meaning, make poorer people pay 10% of their small estates and leave the wealthy alone. Which it would, in effect, as 10% of a great deal isn’t much. God, Tories really are assholes.

IHT currently hits Londoners disproportionately which I’m not sure is fair. You say it’s a tax on the wealthy but that’s not true in London. My in-laws came from very deprived background, worked as a nurse and a teacher, didn’t really spend much because they were brought up with no money and have a saving ethos, bought a 3 bed house in a part of London that was gentrified, had a final salary DB pension and left £1.8m, £1.2m of that was the house. Anywhere else in the country a 3 bed house would never sell for £1.2m.

6 months.

You are correct.

Yes, it can be a big problem, especially with some retirement properties which have service charges and can’t just be rented out.

as of 1st April it's estimated that over 10% will pay IHT because Labour included unused pension pots into estate.
Again, it's middle class and London/SE tax

if tax is fair then it's fair no matter what. Why do you expect the same group of about 10% people to pay for the entire country?

10% with no threshold would generate many times more money than the current set up because wealthy people wouldn't need to bother with estate planning.

Well no, only 5% of estates incur inheritance tax due to the fact it isn't 325k in most cases.

325k is just the basic starting point, for most married couples the estate needs to be above 1m before inheritance tax is paid.

I fundamentally disagree with that policy. A married couple can leave £1m tax free to their beneficiaries when they both die. That’s more than plenty. If your London family home + your other assets are together worth more than a million, it’s almost certainly driven in large measure by unearned (ie untaxed!) growth of the value of your home. And your home shouldn’t be a “tax free investment vehicle”. The husband and wife likely bought their lovely property for three times the husband’s annual salary forty years ago and have made a super profit at the point of their death , far more than if they had saved the money in other ways.

No - the family home should not be exempt from iht above the current thresholds.

And yes, I say this as an affluent person who is likely to go to be a beneficiary of an estate paying a modest amount of iht.

You are correct, it will be a 10% niche concern.

IHT is a really funny one because it's a very high marginal rate above the threshold, but it also negates all the CGT you would have paid had you sold your assets in your lifetime. So maybe an alternative answer would be to collect all the CGT that would have been due if you'd sold it on the day of your death? That way a family home you lived in is safe, but a second home gets taxed, and so do stocks and shares.

I actually have no idea what the income generating potential of this idea would be though!

Explain what happens with a house? How is it split into £12k chunks?

5% of estates pay IHT. I can't quite believe that this is the Conservative's big policy. Discouraging the elderly from downsizing. Keeping wealth within the privileged 5%.

I thought it could be paid in installments if the property isn't sold?

Is this some kind of surreal quiz?

do you object just leaving it as it is?