Inheritance Tax

[Luckydip1]

Rushi Sunak has floated the idea of abolishing IHT, at last, this has got to be the most hated tax in Britain. Why tax people on what they have already been taxed on. Now I can pass my house onto my children without it having to be sold to pay IHT.

My children will be faced with a fairly large inheritance tax to pay on my estate. As a single Mum, I worked very hard once my children grew up, to save money for my retirement and to pay off my mortgage early. So I get the basic inheritance tax allowance of £325,000 plus £125,000 for my house. I have less than £325,000 in savings but my house is worth over £600,000, I paid £400,000 for it 12 years ago but prices for bungalows have increased a lot round here.

Part of me resents having to pay that as if I was married it’s unlikely either of us would incur the tax as our allowance is doubled to £1m after the death of the second spouse. To me that is the unfair part, I kind of OK with being taxed on the increased value of my house but I think there should be equality for everyone, married or not.

I have never considered myself to be in the top 4% of people in this country based on money! I’ve never had lots of spare cash to spend on myself, I’ve focused on saving for my future needs so as not to depend on others.

I think the gvt out to increase the amount tax is paid on to reflect current house prices - just by the % increase since the current allowances were set out.

Its also unreasonable that the tax has to be paid before probate is granted ie before the house is sold, this forces people to borrow money to pay it in order to be able to sell the house. Personally I won’t be leaving my children enough cash to pay the tax as I’m intending to have spent most of my savings by then!

YetMoreNewBeginnings · Today 12:52

MrsSkylerWhite · Today 12:46

Is it not the same rate for everyone, then, Beautyfadesdumbisforever?
You can leave your home, worth up to 500k, IHT free to your child, but not a niece or nephew”

Thanks. Well that seems unfair, on the face of it.

I would actually abolish all exemptions. It's free money, why shouldn't you pay tax on it? You will still be better off than the many people who don't get any inheritance at all.

I know what the tax currently are and I will still be affected. I inherited from my own parents and already paid one lot of inheritance tax so I'm not keen for my DC to pay IT again on what is essentially some of the same money. 🤷

Most people dont pay it. Id argue that council tax is more hated.

@DuchessOfSausage both DH and I already do gifting each year to DC and DGC.

Yes, this is the problem. The estates of single or widowed people without children get clobbered. It happened to an elderly cousin’s estate two years ago. She was widowed, no children and left everything to a niece and nephew. They had to pay a huge amount of IHT due to the house appreciation (she’d lived there 50 years).

Personally, I think it would be fairer to raise the £325K threshold to account for today’s house values. I know the threshold is higher in some countries.

Hate is a strong word.

I think IHT is the most hated tax as there are so many old people and most of them worry about IHT despite most of them not having to (ignorance).

I think it will get the tories votes if they do abolish it.

The rich don’t pay it as they are often Isle of Man residents or similar offshore arrangements.

I wonder how it works if you have a partner who’s not on the house deeds and you don’t have joint bank accounts? I’m guessing they have to pay IHT?

A tax that only paid by the wealthiest 3% is obviously going to be unpopular with Tories. And the bollox about "being taxed twice" is a reliable indication that someone does not understand the tax system

The most sensible proposal on IHT I have read is here:

@anniegun But as more people are living longer, choosing to be child-free and not getting married, won’t IHT start impacting more people?

In its current form, that is. I agree that IHT doesn’t need to be abolished, but I think it needs to be revised so that it continues to only affect the top 3%.

And some interesting analysis on who pays it now Why does inheritance tax matter politically? – Tax Policy Associates Ltd

Why would we cut the tax that dead people pay, rather than cutting the tax that people have to pay when they are alive and struggling to pay bills

Wish they would deal with the issue of crazy untaxed property price increase instead. Then less 'ordinary' people would have to pay it anyway.

I am not a tax expert but I believe it works like this.

If you are married (i.e. not just living together), whether you have a will or not, whether the house or anything else is in joint names or not, everything one spouse leaves to the other is exempt from inheritance tax. You could be Rupert Murdoch and anything he leaves to his current wife would be free of IHT.

If you have joint assets, it depends on the exact legal wording of the ownership, but usually on the death of one spouse they default to the other spouse. They might have to be valued for IHT, though.

If you're not married, and one partner leaves all or part of the estate to the other partner, there will be no exemption from IHT and when the second partner dies they won't get the unused £325,000 threshold from the first spouse.

This is the reason many people who were adamant that marriage was not for them do quietly get married in later life, if they own property in London, for example.

@anniegun Simple fairness. Why should the estate of a married person with children pay less IHT than that of an unmarried childless person?

Also, why shouldn’t the threshold be more in line with current house prices? Nowadays, so many ordinary properties are worth far more than £325K, not just mansions owned by the top 3%! As I said upthread, I think the threshold should be raised to say £500K, if not more.

This is the reason many people who were adamant that marriage was not for them do quietly get married in later life, if they own property in London, for example.

Thanks, @Gasp0deTheW0nderD0g. I think that’s fundamentally unfair, tbh, and doesn’t reflect today’s society.

The thing is, @HamBone, that is what marriage is for. It's not all hearts and flowers and an excuse for a big party. The law recognises that if two people live together and especially if they have children together that their finances and lives are going to become intertwined. If the relationship breaks down or if one partner dies, there are going to be financial consequences, and the law around marriage, divorce and inheritance tries to make sure that both parties are treated fairly.

If people choose to live together without getting married, that's absolutely fine, of course, but it should be an informed decision. They should know what they are losing out on, just as people who choose to get married should know what they are also possibly losing out on. If one partner has a lot more money than the other one, they would possibly lose a lot in the event of divorce. If one partner was married before and has children from that marriage, and also a lot of assets which they want to pass on to their children, marrying a new partner may be a bad idea.

Spouses get advantageous treatment when it comes to inheritance tax because it would be heartless to turf a widow or widower out of their own home so that inheritance tax can be paid. If unmarried partners want similar consideration, they can go for a civil partnership or a registry office wedding with no frills. The alternative would be expensive estate planning.

Surely the reason that the estate of someone with no dependents pays more tax is simply due to that fact - no one is dependent on the property or income. Argue away that exemption and you'd find a widow/er having to sell their home after the loss of their spouse. Aside from that we should all pay tax on unearned wealth - because it's the right thing to do.

@Gasp0deTheW0nderD0g I appreciate that it’s complicated. I think a better solution would be to raise the IHT threshold so that it really only does impact the truly wealthy.

This thread just got me thinking of people I know whose estates would be impacted by this. They’re single and own a property in the SE or another expensive area that’s appreciated. None of them are in the top 3%, nothing like!

I don’t think that’s who IHT is aimed at, is is it? Why shouldn’t their extended families get the full benefit of their hard work?

It's a vile tax on money that has already been taxed and I'm very much in favour of scrapping it. Fortunately there are ways around it but it's a right pain in the arse.

However, on the other hand I wouldn't mind a small increase in income tax to support infrastructure and services.

@EATmum i appreciate your point, my real bugbear is the £325K threshold, tbh. It doesn’t reflect housing today at all. Years ago, it probably did only apply to truly wealthy people.

If IHT did apply to more people I wonder if it might put a brake on house price inflation. That's the only reason many people inherit these crazy amounts of money.

We've just paid a load of IHT on my mother's estate. People tend to focus on the 40% headline rate but in reality with the 500K exemption we paid about 12% on the entire estate.

It's a bit galling that mum was penalised for being divorced so didn't have any spousal exemption to add, in which case there would have no tax to pay.

I agree with all pps that the property threshold is too low and also that you have to find the money to pay the tax within six months or incur massive interest.