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.

@Fluufer and that's exactly what we will do, sadly.

Which is another reason why it's a relatively ineffective tax as so many people take action to avoid it. If the rate was in line with capital gains tax we would be very happy to pay it.

Sorry have only read a page. My mum worried about IHT (in fact care costs will take most of it I should think). I can't pretend we would have enjoyed paying it, but I wouldn't lift a finger to change it.

I wish they would sort out the probate timescales - when my dh died in 2018 it was pretty quick, maybe 2 months, but it seems to have become incredibly slow since Covid. Perhaps they could spend some of the IHT received on it.

Each parent can leave £500k (incl the house) to their offspring or grandchildren. So an estate can be worth a £1 million and not taxed.

Of a £2m estate, the beneficiaries will receive £1.6m .

And in such families money will surely have been handed down well before the 7 year cut off.

Only 4% of estates are liable for IHT.

Buying a (in most cases perfectly ordinary) house is a good choice but not one that people need to be able to be rewarded for by a huge tax incentive. The fact that the house has increased hugely in value surely is incentive enough

Also massive inequality is not good for the economy

you do realise we pay tax multiple times on the same things already.

if you want to avoid it it's very easy to do, you just open a limited company for £1 and make yourself and your kids the directors and put the property in it. you just file the accounts every year.

Dead people don’t pay tax 😆

Comment was on inheritance tax in general - not just residential property.

Inheritance tax is 40% above the threshold - that is tax enough. Almost half. And more people have had to pay as the thresholds have been frozen.

Lastly, you can address inequality by reducing what the wealthy have or by increasing what the poor have or both. Inheritance tax at 40% is a redistribution tax already - addresses reducing wealth. Can we have policies that promote productivity and wealth generation for the poor?

Also - if I know most of my wealth will be taken by the government - I could sell up, buy a small farm house in some jurisdiction with low inheritance tax and pass on the wealth over time anyway. Or not pass it on and my kids can be supported by the state to build from scratch ad infinitum. There is a point where excess tax reduces tax revenue. No idea where we are on that curve but guess we will find out

Given a choice on where to increase tax, IHT would be a preference for me.

I am in the fortunate position of having sufficient wealth that, if I died now, my estate would be subject to IHT. I also have a pretty large pension pot that would be exempt from IHT which seems totally illogical to me (even the 'taxed twice' brigade can't argue about this one).

How are you working out that most of your wealth will be taken by the government? As explained several times on this thread, the first £325k of your estate is always exempt from IHT and if you inherit your spouse's unused threshold and you're leaving your property to your children, you can pass on up to £1m without a penny of tax being paid. The government takes 40% of what's left.

What a generalisation. I suppose same can be said for people living in social housing and on benefits. Free pass?!

And they can study David Beckham's corners if they like - as long as they are not depending on the taxpayer to do it.

If work ethic isn't passed down - generational wealth dies out anyway. The focus should be on economic growth and a culture that plays a high value on aspiration, innovation and productivity

Is it slightly about the politics of envy? I am envious of you being wealthy but say least I have the satisfaction of you not being able to pass on your estate in its entirety?

It's a huge amount of money you have if it is a married couple who have died and left an estate to you that attracts IHT. If you're complaining about paying tax on such a windfall you should be ashamed of yourself. And in any case you don't pay the tax on the whole amount, just on the amount that falls above the very large exempted amount.

What would you rather have? No public services? Or people on minimum wage paying more tax? And please don't talk about the waste in the public services. We all know about that, and every government since the dawn of time has promised to tackle that to no avail. And we also know about billionaires and multi nationals avoiding tax. That is not easily solved and is not going to be solved by you not paying tax on your vast windfall.

https://foresight-ifp.co.uk/king-charles-ii-will-not-pay-any-inheritance-tax/#:~:text=King%20Charles%20III%20has%20avoided,his%20mother%2C%20Queen%20Elizabeth%20II.

The Royal Family don't exactly set a great example here and as pp have suggested other families with extreme wealth have a number of ways to avoid this tax. There is no scandal when a wealthy individual does and their inheritance is protected so why so much ire towards the middle classes that wish to leave their estate to children and grandchildren?

This tax hits a lot of homeowners in the South East many of whom you would not describe as wealthy particularly, we are not talking about the super yacht class.

It is an easy tax to promote politically given the posts on this thread and I am sure the current government will possibly reduce thresholds and exemptions. I wonder if Tony Blair has his money well protected by the way?

https://www.theguardian.com/money/2016/aug/11/inheritance-tax-why-the-new-duke-of-westminster-will-not-pay-billions

It becomes tedious looking at how the mega rich avoid inheritance tax. It's as if nothing can be done at the very top so the government have to look at the middle class to claw money from and those that aren't in line to inherit wealth are all to reach to virtuosity laid the 'ffairness' of this tax.

Virtuously laud

There are all sorts of issues with tax the more you try to avoid it.

eg property worth more than 500,000 on a corporate wrapper can’t be lived in by relatives without incurring an annual tax hence a declaration is required annually to this effect

The simplest thing to do if gift your home and pay market rent to your kids but that is taxable.
as income tax also when they sell they have to pay corporation tax on the profit and also dividend tax.

So....is it moral for financial advisors to advise on means to avoid this tax? You may use euphamistic language such as tax efficient but there are many advisors who will do this? Maybe we should start a thread on the best means to do this (legally of course)?

Yes it is moral.
In as much as anyone choosing not to give away any spare money is moral.
The government make the tax rules. They can choose to change them. The public (all the public, including the rich) are entitled to do whatever within those rules.

You can earn well and luve well and not save for old age. The state will step in to some extent.
Or you can earn the same and be frugal, maybe spend it all on care when old, or maybe die before then and have spare to pass on.
I would argue the latter is maybe more moral than the former.

Changing tax rules can have unintended consequences. Raising inheritance tax may result in less money. Lowering it may result in more money. (See also var on school fees). If you want people to be philanthropic it may be better to tax less, as then the rich feel more obliged to share their wealth.

Twenttotwenties

Interesting points. It leads me to believe those that are going to be taxed are those that were possibly not as financially adept as others which again is maybe an unfairness. It seems the hyper wealthy have no compunction in using any tax efficient vehicle they can do why can't the more lowly?

It would be interesting to see whether a dramatic change in IHT brings in more money for the chancellor?

The cost of advisors.

Not wanting to lose control of proportionately more of their nest eggs (in case need for old age).

Say you allow 100k per annum for care fees / medical. 5 years for 2 people gets you to 1 million. And that is in accessible funds. And you also want to be in your home as long as possible. You bought it 40 or 50 or 60 years ago. It can add up.

The super rich only need the same, or maybe double for old age. They can bung the rest into trusts or whatever.

Good points.

I think obsessing over what the superwealthy do is far more the politics of envy than acknowledging that a developed state needs funds that we share out to do what's needed between us.

If we flip it round, and imagine that we theoretically scrap IHT and we can pass on hundreds of thousands of pounds, should the recipient then not pay a windfall tax? You may have worked hard for your home, but your children didn’t.