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!

So, let my check my notes here: OP wants people to receive tax free hundreds of thousands of pounds from inheritance, but when I support my children with rent so they don’t become homeless they have to pay extra tax right? On top of their huge cost of living and student loan repayments?

You are not benefitting from the money because, er, you're dead.
Your inheritors are being taxed.
It's like saying you're being taxed twice when you earn money and then when your cleaner pays income tax. The second time it's NOT YOU paying the tax.

Yes not a good idea.

It's not about what the government gets. It's about what is fair in terms of what people pay on death / receipt of gifts. At the moment it seems unfair both that people have to give up a chunk of the value of their life's work prior to it going anywhere, AND that people receive gifts entirely tax free despite not working for them. My proposal (or suggestion, whatever. Are only MpS allowed to propose anything?) reverses both of these unfairnessss.

People would have to fill in self assessment tax returns as many do now. If they dodge the tax that would be a crime and they'd be dealt with. The potential for tax dodging isn't a reason not to tax people.

I want the opposite of what you say. At the moment people receive hundreds of thousands of pounds tax free.
I could receive a letter in the post tomorrow with a cheque from my long lost dead uncle for £1m and I'd not have to pay a penny of tax. My proposal is that I would have to pay tax on that.

But if your uncle's estate hadn't paid tax on it then you would be getting the £1M plus that amount which you would then pay back in tax! What difference does it make? I'll leave you to this one.
Edited to remove silly asterisks

I think we should all be grateful we are not Spanish, where accepting inheritance from a relatives also means legally accepting their debts.

Have I missed what is classed as a gift, how is it different to inheritance tax

With the changes to pension pots being taxed on death, won’t many, many more people be paying inheritance tax? It might only be 5% of estates now but that will grow (and make it even more unpopular).

Firstly it’s 5% of deaths - kids, young people, those without an estate, that pay IHT.

Yes LOADS more people will get caught especially in the SE

OP - I agree with you in principle. Taxing unearned gifts seems fairer than taxing an estate.

however, I think this would be harder to administer and easier to avoid. Deaths obviously have to be declared to the government. Gifts are harder to track.

it could also imbalance things between siblings. If a gift is treated as “income” for tax purposes, and child A earns £100k + £100k inheritance/gift, while child B is on maternity leave and earns £4k + £100k inheritance/gift, then A pays more tax than B. It gets complicated.

They’ll be paying 40% on everything over £1 million. How entitled do people have to be to think this isn’t fair? The pension situation has an easy answer - spend the money. Pensions are a retirement vehicle not a legacy. Why shouldn’t they be taxed on withdrawal? The money after all was tax free on the way in.

Isn’t the problem that loads of people think they will have to pay IHT but don’t understand the thresholds

Good point, pensions were never meant to be a savings pot to hand down

my parents estate will have to pay IHT, I think 1m tax free is generous

Yet another idea to take money off people who worked hard their whole lives and to try to stop them passing on their wealth to their DC and DGC but instead to tax it to take huge chunks of it to give to illegal immigrants and people who don't bother to go out to work themselves. If you want communism live in Russia. What about everyone goes out to work to earn their own money and don't expect the state to pay for you or to top you up at others expense.

I agree , a person who is a resident with a home can leave 500 000 before paying tax, if they were the last surviving spouse and inherited all their spouses assets they would be able to pass on 1million before paying tax (funeral expenses and charity) are also reduce the tax burden. Most people are not liable for paying tax anyway. I think it is very misunderstood, if someone is leaving over that sum they are likely to have employed a financial adviser to reduce tax liability

Justification for IHT is just about envy and resentment - how dare someone have £1 million, earned and saved over a lifetime, to give to their children!

We’ll probably be liable. Who am I envious and resentful of?

@Orangerowanberriesmy parents 60k house is now worth 1.8m. They worked hard but there was a lot of luck involved too

I think this will be changing though as baby boomers die. Most of them own their houses and many have pension funds. I think a lot more people will dragged into this especially as money market pension funds will no longer be exempt. I know it’s still a ‘better off person’s tax’ but it won’t be a hugely wealthy tax as it used to be.

Prize/gambling winnings should be taxable like the US. That would seems huge amounts of sense.

The estate is. Correct.

Absolutely this.

Pensions should definitely incur tax on withdrawal because no tax was paid on that money before it was paid into the pension. People seem to forget this.

This is literally my point. IHT takes money off people who have worked hard for it. So my idea is to abolish it.
People who receive inheritances are getting money for nothing, precisely like the people you criticise. So my idea is to tax them. They haven't 'gone out to earn their own money' like you say people should. They have been given it.

So not quite sure what your objection is... Unless you just want there to be an exception for your own kids. Which doesn't seem fair since they are only your kids due to luck.