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.

That's a great idea. As long as older people weren't pressured by money-hungry relatives.

People in "the middle" do not inherit enough to pay inheritance tax. If you believe that they do, then you're massively out of touch and oblivious to your own privilege.

Most countries don't have inheritance tax and the ones that do are far less punitive than the UK.

I guess most counties recognise that prudent behaviour should be encouraged and rewarded across generations.

It is rewarded. People with owned homes get to have no housing expenses as they age. It's a massive bonus. People who rent have to pay rent forever.

It's not something the VAST majority of people need to worry about. I don't think people understand this.

Actually, they do in a round about way. All debts against an estate have to be paid before any inheritance is passed on. The beneficiaries receive the net proceeds of the estate. IHT is a debt against an estate.

@Gasp0deTheW0nderD0g thank you so much for your reply. It's really useful and interesting. I'm not good with financial things and your explanation has helped a lot.
I did not know that it counts for both parents, even if one died 30 plus years ago, and the house went to my mum when he passed. That makes a big difference!

How many people do you think still live in the family home when their parents die? I’d guess maybe 1%?
Also, in many LAs, social housing tenancies CAN be ‘inherited’ once.
A 90 year old who dies owning a house worth £1.2m that they bought in 1950 for £1500 has made an absolute fortune on that property. If their child, who’s likely to be in their 60’s is still living at home then they could get a loan or equity release to pay the IHT which would be around 80k

Glad to be of service! I used to be an accountant, but must stress that was a long time ago, so always best to check with a currently practising professional.

@Perpetuallydaisy yes I think it's particularly cruel that in the relatively rare cases where a child loses their parent, IHT is still due.

Also cruel when long term siblings have long shared a home and when one dies it's due.

I think it’s a fair tax.

This is such an important topic that more people should be discussing. Sadly, unless you have been through the process of paying IHT, it is not obvious that the system is majorly outdated, and there are many flaws. If the person who passed away was not married, the threshold is far lower, which means more people are eligible to pay. The IHT of 40%, is based on the estate's value.This does not take into account any debt the estate has/had. After I have paid the IHT, plus interest, plus legal fees and mortgage, there will not be a penny left, and this has taken three years due to the inept abilities of the offices at HMRC and HMCTS. Having to micro-manage these departments whilst working a full-time job on top of actually learning to deal with the grief of a parent passing does reach a boiling point.

You can pay iht in instalments

@wednesday32 yes, definitely some aspects which are unfair. Dh’s uncle died and IHT to pay as had never married, no children and therefore no direct descendant to inherit the property. It’s ironic really as having not had children and by working full time he took very little from the public purse.

That can’t be right
IHT is only payable on the TAXABLE estate, ie the value of the estate AFTER you have deducted debts and other liabilities.

So if ( for example ) the deceased was unmarried and died leaving a house worth say 1.5 m and savings of say £200,000 but had a mortgage of 500,000 and debts of say 100000 the taxable estate would be 1.1m NOT 1.7 m

You would then deduct any NRB(s) and RNRB(s) ( an max of £500,000 if your parents were not married) so you’d pay iht on 600,000

youd still get 1.1 m less 240,000 = 860,000 in your pocket ( less solicitors fees)

Everybody takes something from the public purse. Defence of the realm, Foreign Office, police, courts, prisons, probation, money given to councils to top up what they get from council tax so they can keep the roads in good order, empty the bins, employ Environmental Health Inspectors, etc etc. Also, even those who don't have children need the education system so we have a constant supply of young people qualified to become health care practitioners, engineers and all the other essential jobs that keep our society and economy going.

This is definitely going to be the next school fee VAT in terms of nonsense "woe is me" arguments. Such a small number affected, most of whom don't realise how high up they are in terms of wealth. I also expect it will be just as popular with the wider public.

Absolutely anyone who wants to can hire a financial advisor to help them decide what to do with their assets to reduce IHT liability. And if your estate is going to be enough to pay it you definitely can afford to pay an advisor!

I think inheritance tax is mostly fine (and my dad's estate will pay some unless he and his wife need a lot of care). Personally, I'd prefer he spent the lot on holidays and fancy meals as he's already provided all his children with some help through uni, decent house deposits, ad hoc help when needed. We are stable adults and (barring disaster) will all have our mortgages mostly paid off before dad dies.

Spending the money wouldn't actually avoid tax though. Spending on luxuries means paying 20% VAT. Of the 80% kept by the company, some of it will be used to pay wages (income tax / NI) or as profit (corporation tax etc). It is good for the economy to have people spending at some of their spare money, and those spending to avoid IHT would still be keeping a significant safety net.

However, I'm not keen on the current rules where single parent estates have a much lower threshold than married parent estates. Certainly shouldn't be half (imo).

I also think that if children are still dependent (under 18 or with adults with significant disabilities) anything left to them should be exempt. No u18 child should have to move out of the family home to pay inheritance tax.

I agree with you OP and I find the mindset in many posts on this thread completely bizarre.

If people earn money during their lifetime and want to pass it on to their children it’s the most natural thing in the world.

I do not understand the mindset of thinking that any money someone has is somehow kindly loaned to them by the state which can demand it back if it wants.

It only 4% because the threshold is currently a potential £1m ( if all elements are satisfied ie married couple who leave estate to direct descendants)

If this threshold is lowered, then far more estates will be liable to IHT

Why is that unfair? To whom is it unfair?

In my experience, the majority of people that are in favour of this incredibly unfair tax are those with no assets to pass on, or those that are taking more put if the system than putting in..

Sad that the Labour government are going to significantly increase inheritance tax, CGT and pensioners, which according to the IFS will have negative unintended consequences.

@fluufer well to me it seems unfair that the estate of someone who presumably cost the public purse very little if anything over their lifetime ends up with a tax liability considerably larger than the estate of someone who say lived the life of a drinker and a gambler and ended up in a care home at the state's expense. Like others have said, prudence and wise decision over a life time making should be encouraged,

Sadly, it is correct. Any part of the estate that exceeds the NRB is taxable at 40%.

I'd be fine with this. It seems amazing to me that only 4 in every 100 people who die pay inheritance tax (I know it's their estates paying, but the money comes from the deceased).

I'd be absolutely delighted if the government finally grasped the nettle and did something about the cost of social care for the elderly and disabled. It's a lottery who ends up needing this, just as it is who ends up needing health care, but we pay for health care by funding the NHS and we don't fund social care except for the very poorest. Either put up taxes so we all contribute to the cost or introduce some sort of insurance system, or put a cap on the costs. The current system is a mess.

That would be interesting. What are the "loopholes" and tax avoidance methods that wealthy people use to avoid IHT? How do they work?

Whilst you can object to the current rules/policy, using reliefs that are in the legislation in the way intended are not loopholes or tax avoidance.

Spoiler alert: anyone who "just bungs it in a trust" is probably going to find themselves in receipt of a huge tax bill.