Inheritance tax - a morbid tax but one which impacts a loft of middle class families

[mids2019]

Inheritance tax may be on the increase in the next budget but having just been through probate it for me thinking that iht really impacts a lot of lifetime savers and those with property.

Parents have already paid tax on the income they have saved so there is a moral question over the governments ability to.tax the money again. Is this really fair and isn't it a right we should have the ability to pass on our property to our children?

Also surely it is the middle classes that suffer as I guess anyone with serious wealth protects their assets through complex tax avoidance schemes e.g. footballers, celebs, bankers etc.

HNRTT but impacts a LOT of middle class families?

Not in percentage terms.

Much like in previous elections, there's a coordinated project fear through the media to influence more people to think they'll be subject to this tax than will be. In general, a tax paid by relatively few, wealthy people.

Funny how there doesn't seem to be new posts focusing on the taxes the previous administration raised, nor the increase in taxes paid by the poorer people as a result of the previous UK government freezing allowances.

... and VAT, National Insurance, council tax and all sorts of other taxes. Even the much vilified people often mentioned on this kind of thread who spent every penny they earned and ended up with no money and existing on state benefits must have paid some tax in somewhere along the way.

It’s not my uncle and I am not a beneficiary of the estate and neither is my dh. My point regarding fairness is the rule should not be dependent on having a direct descendant: either give every home owner the allowance or none. It should not be child dependent.

Our cultural understanding, preference and practice of ‘inheritance’ is to leave assets to our offspring.

Inheritance of a home often enables descendants to buy a home, come off housing benefits in later life, come off UC now. We see this all the time on MN: inheritance has affected benefits.

You could also couch it as unfair that someone benefits from extra ‘descendants’ allowances, two lots if from a married aunt and uncle, and in addition to the same amount from parents.

The estate of someone with no children can escape IHT by leaving money over the threshold to charity.

I hate the term check your privilege but there's a lot of people here who seem unable or unwilling to realise quite how well off they and their families are relative to the majority of the country.

It is perfectly possible to acknowledge how lucky you are and recognise that a two-tier system exists. I've said more than once that I'm a believer in inheritance tax, despite both my father's estate and mine likely to pay it. Increasing it wouldn't change my mind either - I'm paying off my mortgage and saving so that I can have a comfortable retirement and in case I need care.

What I find odd is the inconsistency. All other taxes are paid independently. It doesn't matter if I'm married or have kids - my income tax allowance is the same, my council tax is the same etc. But the inheritance tax would be less (or in my case zero) if I had a child.

But then, I suppose, the tax system isn't really the right place to look if you're trying to find fairness and consistency!

I like the idea of a lifetime inheritance allowance tbh. That means it is being taxed as income rather than the estate. And levels up those (such as one of my nieces) who won't inherit from parents but will inherit from me.

I'm currently executrix of my DPs estate. Yesterday I confirmed to our solicitors that the estate had paid the balance of IHT which was (to me) an eye watering amount. This was done by emptying DMs bank accounts into the very uninformative HMRC portal, and a £30k "loan" from the executrix (now hoping we don't have our boiler explode on us before payday). The estate did not have access to DFs accounts where the vast majority of cash was held as it hadn't gone through confirmation (McProbate) before DM died. It's been very stressful dealing with the admin at the same time as grieving both parents, and trying to scrabble round for liquid cash before HMRC start charging interest after 6 months.

It is not "my" inheritance and I have no issues paying it on behalf of the estate (same as bills for insurance, house repairs etc on behalf of the estate). It is my DMs "bill" - not mine. I'm still going to inherit a metric fuckton, life altering amount, which I am inordinately grateful for and realise makes me definitely in the minority.

My parents were obviously much more well off than any of us understood - but it kind of snuck up on them (house price rising, investments doing well etc). And they were saving on the assumption they would need care - 5 years of both of them in a care home (not unusual in either of their families ) would easily eat up £1m. As it happens, they didn't for any length of time so some of that saved money went on IHT instead - fine. Would be finer if we could know that it WAS going to pay for the NHS/ social care, but we don't, and that's the nature of tax.... But it is such a lottery and people falling in/ out of the IHT threshold must to a large extent be whether they did need care or not at the end of life. I don't know how that can be resolved...the whole system is a mess at the moment.

"Is there public evidence of billionaires giving half their income to HMRC"

No, but there again, neither do estates that are worth £500k or £1 million

From the HMRC data (which covers 2021-22) it shows that the largest estates, with an average net value of £19.5 million paid on average £3.9 million in IHT.

That is 20% of the total value. So, quite a bit less than the roughly 40% you would expect. So it shows that, yes, they are using means to pay less IHT but they're still paying a lot. (You would typically expect an estate worth £19.5 million to pay £7.4 million in IHT, so they're saving about half of it)

Moving down to those with estates between £2 million and £10 million they ended up paying on average 24% of the total value of their estate in IHT.

If you take a person with an estate worth £5 million then you would expect IHT to be typically either £1.6 million or £1.8 million. These people paid on average £1.46 million in IHT. So they were managing to save maybe a couple of hundred thousand.

Then move down to those estates worth £1 to £1.5 million. Here, around 23% of people didn't pay any IHT at all so they obviously managed to do something.

Of those that did pay tax, the average amount of the total was 13% or £155,000.
You would expect an estate worth, say, £1.2 million to pay either £80k or £280k in IHT so it looks like it was a mixture of single people and married people who were paying the IHT.

Then if you go down to estates worth £500-600k then only 19% of estates had to pay IHT at all, which would imply that for a lot of these people they are getting the £1 million allowance.

Of those that did pay IHT they paid on average 10% or £53k in tax

So, yes, this tax is hitting the "struggling middle class" the most - if your definition of that is somebody who leaves an estate worth around £5 million.

Source: HMRC Inheritance Tax liabilities statistics Table 12.1

https://www.gov.uk/government/statistics/inheritance-tax-liabilities-statistics

Some areas a 3 bed terrace is worth over a £1m.
IHT is also an issue for unmarried couples which is one of the reasons we got married after years together. If we hadn't and he died my IHT bill would have been £20k+++ just to stay in our jointly owned home. It would have been more depending on any other assets he has.

My parents’ hard work and astonishing good luck in housing prices does not equal MY entitlement to free money.

Exactly this ! My parental home in the northwest of England would not trouble IHT thresholds but it has still gone up in value somewhere in the region of 250% since my parents bought it in the 80s and that is primarily just luck and timing. They haven't worked hard for the increased value of their house, yes they've kept it nicely but so that they have a house they want to live in not with a view to it being a more valuable asset in future.

@Fluufer
On your logic, not everyone can move to a cheaper area because then London and the southeast would be deserted and your house prices elsewhere would rocket.
Allowing non UK residents to buy property they don't actually live in has caused some of the house price inflation especially in London.

It was introduced by David Cameron and came into effect in 2017. It was done specifically as a measure to help families.

The government had the option back then to just increase the £325k limit for everyone but chose to do this instead.

I'm not sure what you're referring to, since you haven't quoted. But a "modest" house can mean size, can mean price. The most expensive flats in the country are modestly sized. The owners are still vastly wealthy.

And that is a very expensive house, even if it is 3 bedroom rather than a mansion. Average house price in the UK is less than 300k.

Again people not realising how well off they are. It may be a big mortgage, but it's also a big asset !

Assume it was introduced as the threshold had been £325K since 2009.( Prior to that it increased annually).
it would have been fairer to have increased the nil rate banding.

About the terrible agony of only getting half a million 🤷🏻‍♀️

It's true that the dead don't pay tax. But the tax is not paid by the beneficiaries of the will, the tax is paid by the estate of the deceased, which is a legal entity.

Not everyone is in a financial position to inherit, as whilst the estate is the one being taxed, the executors have to pay the inheritance tax bill before they can apply for probate. Many accounts do not allow the release of funds without the grant of probate, so if you do not have any savings, to begin with, you can find yourself in a position of need to find a lot of money in a short space of time to allow the probate application to proceed. If you do need extra time, you are then charged interest on top of the tax bill. It is disgusting.

So today's pensioners are not the luckiest people ever - just one part who have nice public sector pensions and/or benefitted from getting on the property ladder earlier. You also find the cohort most likely to be living in poverty (older single women) in this age group.

So exactly the same as every generation - some do well, others don't. When we fudge that fact in favour of identy politics style "boomer/GenZ" bashing we mask that fact. And who does that benefit? Certainly not the strugglers in any generation.

Most organisations have ceased DB pensions now, no one gets to retire from age 50 (minimum age is rising soon to 57), state pensions have gone from age 60 to age 67/68 for women. So no it’s not the same.

Most pensioners were not in defined benefits systems - as I said, largely a public sector perk with the gold plated index linked deals for professional roles. Some pensioners had small fixed DBTs but most were both small and fixed - not index linked and rapidly eaten up by inflation in the same way that money purchase schemes can be. Women in particular were quite often excluded entirely from company pensions schemes of any type.

Most pensioners couldn't consider retiring at 50 either - there was a wave of "early retirements" in the 70s/80s which were in reality voluntary redundancies but the idea that most pensioners were just unilaterally retiring at 50 to spend their squillions was no truer then than now. Actual pensioner incomes in this country remain amongst the lowest in Europe.

However much propaganda you have read from lobby groups promoting the "evil rich boomers are all squillionaires" message it simply isn't true. Its often concocted by guestimating the value of assumed pension pots and assumed property assets whether they exist or not. The result is a distortion to suggest that an entire generation have the wealth of the top 20-30%.

Focus on "haves" and "have nots" in every generation if you want any degree of fairness and social mobility.

Oh and additionally, many of those pensioners with the small "company" or superannuation pensions have them at the level that just about keeps them above pension credit level - often by a few pounds or pennies per week. So just above the poverty level for benefits. Yes rich indeed.

Pensioners in poverty won't be one's whose estates pay inheritance tax, so not particularly relevant.

Of course: the best way to avoid IHT is to gift your assets (without strings attached) and don’t die for 7 years.

But their dc are now living in a world where to buy anything remotely close to home is going to cost them £650k