Gifts and inheritance taxes

[nearlylovemyusername]

Labour drafts options for wealth taxes to ‘unlock’ funds for public services | Labour | The Guardian

So IHT on farmland and AIM was rumoured. I don't have any knowledge on these subjects to comment, but here is very interesting twist:

"Sources said wider changes were also being considered on gifts and inheritance tax. Currently, no inheritance tax is due on gifts if they are made by a person who lives for more than seven years after the gifts are made"

In 2019 Corbyn wanted to introduce lifetime cap on receipt of gifts and inheritance on recipients, not estates - is this being considered again? Does this mean that those of us who want to downsize to help DCs with deposits will now pay to HMRC instead?

It looks like the rules of the game now are that you can earn and pay tax, but whatever savings/assets you're trying to accumulate will be taxed to the eyeballs and you can't even pass it on to your DCs without huge tax?

In 2019 Corbyn wanted to introduce lifetime cap on receipt of gifts and inheritance on recipients, not estates - is this being considered again? Does this mean that those of us who want to downsize to help DCs with deposits will now pay to HMRC instead?

Even Corbyn's ideas on gifts - which were highly likely to have been more "left wing" than anything Starmer/Reeves dream up - the lifetime allowance was proposed at £125,000 per recipient. So you could give £125,000 to each of your kids for a deposit and there would be no tax to pay.

Labour have looked at various wealth taxes before, but they have always been too complicated to be worth introducing, but there is definitely some mileage in looking at the gifting/IHT rules which have some very big holes and unfairness attached to them.

I think IHT is a tax that is absolutely ripe for Labour increasing the tax on. It only really affects wealthy people and Labour would see it as totally unfair unearned money. It’s also a way of levelling the playing field which sounds like a good idea but what Labour means is bringing everyone down a level, not up.
I have no skin in the game as I’m in Aus where we have no IHT but I can imagine in 10 years there will be tax payable on everything inherited plus of course CGT when you sell the house you inherit.

Top ups that parents are supposed to make to cover the shortfall in university fees are gifts so they would be included in any changes.

Does this mean that those of us who want to downsize to help DCs with deposits will now pay to HMRC instead?

No, it means you may pay to HMRC as well. Nobody is talking about a 100% tax levied on all transfers of wealth.

It’s also a way of levelling the playing field which sounds like a good idea but what Labour means is bringing everyone down a level, not up.

That makes no sense. Why would any government want to bring EVERYONE down a level, thus destroying their chances of getting re-elected?

Properly funded healthcare, education, public transport etc brings lots of people "up a level". The money to pay for it has to come from somewhere.

IHT on farmland? I'd be really interested to hear an opinion from someone in a farming family about possible impacts.

I suppose it makes sense if it's an inheritance to a child who won't continue to farm and will just sell it.

But how do you stop it from destroying family farms where each generation spends their whole life working on the farm - putting everything into it as farmers have to, regardless of whether it's currently owned by their parents. It doesn't feel like unearned income when they've spent their whole adult life sustaining the farm.

Farms seem to run with small margins, especially compared to the value of the land, so paying a substantial IHT each generation will just result in the farm shrinking every 25 years until there's nothing left.

Farming already seems so tough, but incredibly important. I think they should think carefully to make sure they don't destroy the sector.

No IHT on gifts as long as the donor lives 7 years currently. You can give away 3K pa without incurring IHT. I'm thinking that they will also go have pensions in the line of sight, drawdown pots can be passed on exempt from IHT ATM. Well that's my understanding.

They have to be really careful.on this one. Why should, for example, a frugal couple who accumulate wealth by saving cash from taxed earnings, be penalised when passing that on to their children, when a similar couple who have spent the lot on high living not being penalised. It's a tax on lifestyle. You might as well just spend it all then, not Dave or invest for the future, or keep it in cash under the mattress like my DM did!

That's exactly my point.

Your earn £100 in higher bracket. You get £58 out of it after tax and NI. You want to pass it to your kids and it's taxed at 40% so they get £34.8 - it's 65% of total tax.

If you're in £100-125k bracket than it's 78% total tax.

What is the incentive to work? As soon as you hit required min you just drop hours or retire all together, what's the point if most of it is taken away?

It gets even worse. If your children buy something from that money which attracts VAT, they'll pay an extra 20%.

So of the £100 you earned, your children will only get £28 of value. The government takes £72

If you earned it in the £100-125k bracket, your children only get £18 from the £100 you earned.

They would definitely benefit more from you reducing your hours and giving them your time instead.

I think these prospects are incredibly depressing (in addition to probably rising capital gains tax too). People are supportive of these sorts of taxes, provided they aren’t affected themselves, which the majority aren’t.

Even without IHT, it's quite a problem with higher taxes: that the benefit we get by not working 100% benefits our own family whereas when working for income in that salary range only 38% of the income benefits your own family and 62% of it goes to strangers.

Unless your time is 3 times more valuable to your employer than it is to you and your family, that's not worth it for you.

Add in IHT, and your time has to be 5 times more valuable to your employer than it is to your child to make working more to leave them an inheritance worthwhile.

Sure about that?

Regular payments to a child don't seem to class as gifts under current laws

It has to be out of surplus income though not savings

IHT on farmland when passing out of being the family farm really needs looking at. Land is being banked (which will probably drive prices higher) by hedge fund type businesses because it's so attractive from a taxation pov. Making it harder for farmers to acquire land/starter farms.

From a very brief initial read (not part of that community myself) I wonder whether changing Agricultural Relief to require the inheritor to work for the farm for a certain number of years prior as well as the owner would work.

Family farming seems to be quite a unique lifestyle from what I've read on here, so I hope the government take plenty of advice to make sure their policies will work before progressing. It seems like the kind of area where there are loads of consequences which wouldn't even occur to someone who doesn't live that life. NUF seem quite active - hopefully that will help.

The Labour Party are thoroughly disingenuous on their plans for tax .

They are going to remove the incentives to work hard and save for the future . Levelling down not levelling up . The more they discourage people to improve themselves the less tax there will be for them to redistribute wealth downwards.

Apart from this The Guardian Article though I’ve not seen CGT plans and IHT mentioned anywhere else this morning. Are the media asleep on the job ?!

I Expect to be stung on Council Tax too and the dreaded VAT on private school fees and probably Student loans and Uni fees in a few years time

This was in many outlets yesterday and it was mentioned that the plans are kept under strict secrecy and it covers both IHT and gifts.

If you looked carefully at numbers in manifesto they don't make a dent in terms of needed spending, e.g. non-doms are leaving in droves, they won't handover £5.3bn to taxman, VAT on PS is certain to be substantially lower, especially in a couple of years time, so some other significant taxes needed.

This is going to be similar to doom spending by youngsters - they don't believe they can buy property so splurge it all now. If middle classes take the same approach, we can't save most of it and pass to our kids, so let's splurge on hols etc and work part time and retire early, the entire society is doomed

Thanks OP - I didn’t see much news yesterday so that explains it ! Will do some googling

@jcyclops out of interest, do you support this £125k policy?

I do support changes to IHT on gifts, but I am not sure exactly what the rules should be or whether the allowance should be £125k. Currently you can give a child £500k and if you survive 7 years there is no tax. If you don't give it away, on death it will attract £200k tax. If you give it and die within 7 years it will attract up to £200k depending on exactly when you die. It seems wrong to me that richer people who can afford the early gift pay less tax than those who can't afford to give it away.

With respect to farms and IHT, the government (showing a typical lack of joined-up thinking) were offering generous grants to farmers to give up farming some of their land and let it re-wild. They were puzzled and surprised that take up of the deal was miniscule. It was pointed out to them that farm land was IHT free, but re-wilded land attracted IHT. Any farmer who accepted the deal would end up paying more in IHT than they had accepted in grants.

I always look at IHT as deferred tax. It is only necessary because you don't pay enough tax when you are alive so must pay a bit extra when you die. IHT could be scrapped entirely if income tax was raised by 1% on basic rate and 2% on higher rate. Funnily enough these 21%/42% rates are exactly what the current tax rates are in Scotland.

This is so incorrect. Current nil IHT band is £500k incl prime residence so £500k inheritance won't attract any rate.
Those who want to pass it on to children usually paid income tax and NI so it's double taxation.
Higher earners pay 42%, 47% or 67% (incl NI) depends on bracket - isn't this enough?

Wouldn't it be more sensible for them to tax billionaires and multi-millionaires? I don't think that people who earn £150k through highly skilled hard graft are really the problem.

In theory yes, absolutely, however billionaires and multi-millionaires are highly mobile and already leaving UK in droves, plenty of articles about it in media and they also employ highly skilled tax advisors who can help to shield wealth from taxman.

£150k grafters don't enjoy the same mobility and advisory so much easier target.
Than about millionaires - SE and especially London properties are easily in 1m++ brackets, so again, can be such an easy target

@nearlylovemyusername - this is only correct if you leave the property to a direct descendant. If you don’t have any children, but leave the property to a family member the threshold is £325 which does seem unfair.