Tories plan to scrap inheritance tax for estates up to £1m is to cost £3.3bn!!!

[PSCMUM]

please tell me, fellow mumsnetters, that you see how awful this would be for public services???! PLease tell me you are less self preservationist than the 2 (pinstriped) aresholes on the tube with me today saying how great it would be as they would get so much more of the value of their parents houses when they died!
I bloody can't stand tories, but this policy is worrying me as it is so appealing as long as you don't consider how they are affording to make such a humungous tax cut - ie, cutting public services. Doctors pay, nurses pay, schools, hospitals, fire engines, lolly pop people, income support, legal aid, free wine for deranged left wingers on mumsnet (ooops, maybe last one just wishful thinking)

[WaynettaVonBlood]

Hear hear, Ebeneezer....

[ebenezer]

waynetta - i think some people are bitter about anything that leaves other people better off than they are!
I actually had someone tell me recently i was 'lucky' to be earning my salary - I didn't volunteer the info btw but I'm a teacher so I guess they had a fairly good idea from national pay scale. Their argument was that I'm 'lucky' because I earn more than the average wage! Hmmm right.... so it was luck rather than 3 years slog at university, a year PGCE which in my day i had to fund, and an extremely demnding job with long days..... You get my drift? Some people are just irrational about money! I'll leave you with a thought before I leave for work.... Do any of you seriously think that if the IT threshold is raised you're going to feel any direct impact on this? Are public services going to suddenly be cut because I really doubt it. If cuts are going to be made, they'll be nade anyway. If you don't stand to inherit, it ain't gonna make a blind bit of difference to you - so don't begrudge those who do benefit.

[suey2]

and they propose to scrap stamp duty for first time buyers.
One of the reasons why the housing market is so crazy in london is because of people who earn their money overseas who pay no tax in the uk. In a London property magazine earlier this year i read that 15% of buyers in kensington and chelsea are russians who do not earn and pay tax here. That is just one group. Charging them £25000 will to fund the IHT changes seems pretty fair to me. It is not coming from NHS, education or anything similar.
Another point that I want to make is that I totally disagree with the definition of rich. Are you rich because you live in a house worth, say £600,000? On a pension? Paying council tax soon to be on the current value of your home? I don't think so.
I also don't believe that the inheritance of, say 2-300,000 will make anyone rich, particularly as the children inheriting will usually now be in their 50s. This inheritance will not stop other first time buyers from getting on the ladder. It is more likely to pay off any remaining mortgage and if there is anything left, be put into a pension.
The truly rich, and by that i mean people with a large disposable income/ wealth will never pay IHT anyway.

[WaynettaVonBlood]

I am in a similar situation to you (though not a teacher): worked my way through school holidays, and through uni, and even moved country to get a better job. The government should not benefit (through IHT) from my decisions and sacrifices any more than they already do.

[WaynettaVonBlood]

(post aimed at Ebeneezer.....)

[FCH]

Just to clarify - in the case of Mr and Mrs Jones of inner London with their 3 children, both individuals would have a nil rate band of £300k or £350k depending on whether they die before or after 2010. Provided they take advantage of this fact (which costs a few hundred pounds in will planning) then IHT will only be payable on any estate over £600k (or £700k after 2010). At this rate each child would be able to inherit about £200k tax free plus any taxed value over this. The nil rate band is not charged per household...

[Caroline1852]

FCH - Yes. But if they were not married no spousal exemption and therefore the inheritance tax is due on the first death. There can be many reasons why people do not marry.

[Kewcumber]

My mother didn't buy her house for £10,000 in 1970 she bought in 2000 at market rate at the time with a mortgage. Most of her estate is what she has saved over 40 years NOT the increase in value of her home.

[FCH]

But IHT on the first death is only due on half the estate, provided they have tenancy in common etc and there is still the first nil rate band amount, and this estate can be left in discretionary trust for the use of the surviving partner during life and then passes tax free to the eventual beneficiaries. So, if a couple are not married but have arranged their affairs so that they have equal estates even if the total is a million (round figures for ease of calculation) the value of the first estate is £500k, IHT is payable on first death on the £200k over the nil rate band totalling £80k. If the residue of the account is left in trust to children (as the likely eventual beneficiaries) this money is not taken into account as part of the estate when the second partner dies. The second partner then leaves an estate also worth £500k, with IHT liability of a further £80k. In the case of a married couple you achieve the same thing by putting the first £300k in trust on first death, and passing £200k directly to the spouse, on second death the residual estate is £700k, with an IHT liability of £160. The net result is the same, but at different times. But as I believe someone said earlier, if there is concern about an unmarried partner being able to afford the IHT on the death of the first partner the cheapest solution to this is to just get married...

[bozza]

Adult children who have lived at home all their lives have presumably had lower costs than those who have had their own homes and so with some foresight have had 40 years or so to save some money.

And I still do not get cazzybabs dilemma. If inheritance tax will cause you to lose your home but it is unlikely that you will have to pay the tax because the money will be spent on residential care, presumably the cost of the residential care will cause you to lose your home?

[Anteater]

Caroline
Taking out a policy that pays out on the death of either of the parents for an an amount that covers any IHT liability is what I have done. fairly cheap as well.

[Blu]

Caroline - afaik, if you own your house with your DP as 'tennants in common' rather than 'joint tennants' then you can each leave your own share of your house to your children with two sets of IHT exempt allowance - one each. You would then have to rely on your children not to kick your DP out of the house once they own half.

Not being married is a way to avoid IHT if you are more concerned about leaving assets to children rather than a surviving partner.

I think.

[Caroline1852]

Blu - yes you are right. Our house is a large asset and my half share is worth more than the IHT threshold so there would be a IHT liability on my death (or on my DPs death). In order to settle that liability whichever one of us would have to sell the house as we would be placed in the position of having to sell the house to raise the money to settle the HMRC bill. The life assurance policies written into trust is the best way - but the premiums are huge, probably because it is a large potential liability.

[Caroline1852]

Blu - the tenants in common/joint tenants thing is actually only relevant to IHT if you are married. If you are married you should definitely hold your property as tenants in common and use up one nil rate band on the first death.