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.

@mids2019 sorry but I genuinely think that labour are becoming a very socialist party! disgusted at the fact that they are also now anti pensioner party even though, for years, their core voters are the pensioners of today!! why should IHT be increased for people who have worked hard all their lives to buy their assets to leave to their offspring? neither my hubby nor I had an inheritance, we didnt go to uni and we didnt receive unemployment benefit, cost the govt nothing!! but took a bloody fortune in tax! tax when you ear, tax while living and taxed when you die!!

Ok, I see what you said but don’t get what you mean. Friend had 700k inheritance inc house and savings etc - no tax. Just the other day

It affects only the wealthiest 7% of the population. Most of the recipients are already well off and middle aged. There is an huge tax free allowance. All money has already been taxed and gets taxed again. Any argument about a tax is a choice, and I’d rather pay lower income tax and higher IHT.

@DadJoke

Are we saying members of the 100 richest in the country are going to follow these rules though? Is there public evidence of billionaires giving half their income to HMRC upon their passing or do they spend significant but discrete effort to avoid it?

I think this is part of the unfairness. It only seems directed to what we would call middle income earners.

It is the loopholes for the very rich that need addressing. Other than our property value, we have nothing to leave. Savings/investments AND property - that makes you rich in my books.

What seems bizarre to me is that if you worked, really hard, for years, you would have paid tax every month on your earnings. If you inherit a million quid, that you did not one single bit of work for or anything in any way to deserve, not a penny in tax will you owe on all that free money.
Why are people so happy to load the tax burden onto people who work very hard and have to spread money thinly to make ends meet so that others can have £££ of free money, no tax.
Bonkers!

Me too. 100% I would rather people pay lower income tax and higher IHT.

That only applies if you are married and have a property worth at least £350k plus direct dependents.

Single people with no children get £325k. A big difference.

This is the problem. I would have no issue paying iht on my parents’ death as long as I knew that those who are much wealthier are also paying the same.

Same with other taxes. Tax me more by all means, but only once you’ve taxed those at the top their fair share (and by that I mean as a percentage, rather than just an amount).

But they don’t, so this is just another tax on the middle classes (albeit the slightly better off ones) while the actual people we should be taking money off are unaffected.

A large number of people never need care homes though, and the average cost of the care needed, if a care home is needed, is about £70,000. Meanwhile the average inheritance tax bill is about £214k which means the average size of the estates which are liable for the tax would be at least half a million pounds MORE than the applicable exemption threshold.

I would support a policy which linked clamping down on higher-value estates avoiding IHT with a policy to refund up to 50% of the self-funded care home costs which were previously paid by a deceased person whose estate was reduced to less than say £300,000 because of having to pay for care. (With that "up to" being linked to a metric for how well the plan to increase IHT from those currently avoiding it goes, so that it's clear that the crack down on avoidance is linked to redistributing the luck/badluck of who ends up paying for years and who is lucky enough to die of a nice swift heart attack with their estate untouched)

Check that’s right as it’s EXTREMELY unlikely your employer would be meeting your CGT liability. In fact I can’t think of any mechanism that would allow them to do that.

Either you pay your own CGT or if it’s a share award in lieu of bonus then you’ll actually be paying income tax on the value which would be deducted via payroll.

All money has already been taxed though… when I get my salary i am subject to income tax… I then used my already taxed salary to buy goods and services and pay VAT… I then use that already taxed salary to pay council tax… I then may invest some of my already taxed salary in shares and when I disinvest them I pay capital gains taxes. All money is taxed multiple times.

Theres some statistics that only 4% of estates actually pay IHT. It really doesn’t impact many at all currently.

When my parents die their estate will likely be taxed but my brother and I will still likely inherit a large sum even after the tax.

Bobby, I don't know your circumstances, but here's a made up example of how it works that shows how few people are going to end up paying inheritance tax.

Jack and Mary are married and jointly own a house. When Jack dies the house and all his other assets pass to Mary. No inheritance tax is ever charged on what one spouse leaves another, so Jack's inheritance tax allowance isn't used.

When Mary dies everything she owns passes to her daughter Lucy. The national average for UK house prices as of December 2023 was £285000. Let's assume Jack and Mary's house was worth a lot more than that - £600000. Let's also assume that Mary had some savings - £20000. So total estate is £620000.

There will be no inheritance tax on this estate, even though that's al ot of money for Lucy to inherit.

This is because firstly we have Jack's unused inheritance tax threshold - £325000 - which is added on to Mary's £325000 because it wasn't used when Jack died. So that's £650000 straight away, and that's more than the total value of the estate.

If the house had been worth a lot more, another allowance would have helped too. Each parent gets an additional £175000 that gets added onto the £325000 each if they leave their home to their children or grandchildren. So that's £500000 - half a million pounds - for each parent to leave their direct descendants free of tax.

Even if there was inheritance tax to pay, it's not on the whole value of the estate. It's 40% of the amount above the threshold. So a family like the one above can pass on £1m with no tax to pay. But even if we up the value of the house to £1m, using up the entire tax-free allowance, there's only going to be £8000 tax to pay (40% of the £20000 savings).

Obviously if your Mum isn't going to have unused threshold from a spouse, that changes the position. But her assets have to be very substantial before you need to worry about paying any tax.

This webpage explains how to apply to postpone paying inheritance tax because you don't have access to any funds before you get probate. I think you might end up paying interest when you do eventually settle up, but HMRC aren't going to foreclose on you if you can't pay up within the first few months after your Mum's death.

As others have said only 4% of people currently pay IHT. If you are ‘lucky’ enough to be in that bracket then you shouldn’t be quibbling about paying tax IMO. And yes I do have experience of this recently.

it’s not as simple as you stated.
certain allowances may not be applicable eg 175k property allowance - property not left to a direct descendant, property was rented, property value under £350k

Link would help! https://www.gov.uk/guidance/applying-for-a-grant-on-credit-for-inheritance-tax

Mostly, yes.

And I have visibility over the IHT returns for a proportion of these individuals.

A lot pay the value over their lifetime using trusts, but don’t save on the 40%. Many give away a lot in lifetime, lots spend thousands a month on insurance that will cover the tax.

People who are against inheritance tax are basically saying that people who never work and instead live of inheritance should not be taxed whereas people who work for a living should pay tax. To me that is absurd .

This.

Absolutely agree!

Then you’re rich. No way I could’ve afforded our family home on just my wage, even without kids.

People are talking about today’s pensioners being ‘lucky’. What about your estate when you are a pensioner? Taxes once brought in hardly ever gets rescinded.

That is an excellent and very clear explanation !

The last bit. They want the free money and object to giving up any of it.

Wealthy people cheat tax is a universal problem and not one particular to inheritance tax.