Inheritance tax changes

[AhBiscuits]

Any speculation on what changes will be made? Is anyone trying to put measures in place before the budget?

My dad died suddenly in August. His estate is not liable for inheritance tax as he left his home to me and my siblings, he had inherited my mum's nil rate band and it was under a million in value. I have made sure to get the probate application submitted this week though, because who knows?

My inlaws have just signed their second home over to DH and his brother and are now renting it from them. They expect to live much longer than another 7 years. They are hoping this will remove this property from being part of their estate. But again, who knows.

I don't agree with inheritance tax. People have worked hard for their money and were taxed on it. It should be theirs to use as they wish without another tax. It was really important to my dad, and it clearly is to my inlaws, that we inherited when he died. He lived frugally, despite our protestations, with this in mind.

The tax loophole for AIM shares can be argued to have broken that market. Shares in the AIM market are overvalued for their tax benefit rather than based on the underlying value of the asset.

So risky to give away your home to your children
What if they die first ,get divorced ,go bankrupt

We may inherit quite a lot from my ILs ,but who knows 🤷‍♀️

We certainly aren't depending on it,and will not grudge the IHT on it

The country needs money to invest in projects that will improve things for everyone

@Negroany When I said smaller estates, I meant those that are just over the threshold, because nowadays, £325K or even £million isn’t worth what it was when the number was set back in 2009.

As I said upthread, what I really think would be fairest is to adjust the thresholds to reflect today’s COL and house values. That would raise the £325K to about £500K anyway. It’s shocking how much the COL has risen in 15 years. 🙁

For those that want to raise the thresholds - what percentage of estates is the “right” number to be liable for IHT? 4% has been quoted a few times as the current amount and I think a PP mentioned this was likely to be 7% in future (not sure how far into the future)

There are more than enough concessions, particularly for houses.

At today's wages I won't earn £320k over the next ten years. Even a tenth of that as a windfall would change most people's lives.

I'd reduce the threshold considerably but also reduce the rate of tax charged.

The other reform that might improve fairness would be for tax to be paid by the recipient of the legacy and at rates related to their wealth/income.

@SheilaFentiman I hadn’t really thought of percentages of estates, I was focused on what 2009 numbers actually mean in today’s terms, particularly with the massive increase in house values. Presumably more estates will pay IHT if the numbers remain static.

Yeah, I get what you are saying. I just wondered if there is a correct number of “wealthy” estates - is that the top 1%, 5%, 10% etc.

@Bromptotoo I suppose I’ve always thought of IHT as a tax paid by the very wealthy, I.e., multi-millionaires, not people on average incomes who inherit a house that’s massively increased in value over time.

But perhaps that’s ok, it’s just a different perspective.

For income tax:

• Higher rate Income Tax payers make up a projected 15.6% of the overall Income Tax paying population in 2023 to 2024
• Additional rate Income Tax payers make up a projected 2.4% of the overall Income Tax paying population in 2023 to 2024

Handing over cash or assets can cause problems if the elderly person needs any sort of help.

Deprivation of Assets can cause endless worries.

https://www.ageuk.org.uk/information-advice/care/paying-for-care/paying-for-a-care-home/deprivation-of-assets/

Shouting that only 4% of estates pay inheritance tax is misleading. There is no IHT between married couples, so essentially most estates will only be taxed on second death. If you count the first death the figure would be significantly higher because the tax is just deferred.

Our adult DC could possibly have to pay inheritance tax because of the value of our home increasing over the years and our pension pots. Neither of them have earned this money and agree it should be taxed. As do my DH and I. Money for public services has to come from somewhere.

The top 50% of income tax payers, pay 90.5% of all income tax receipts. So £177 billion out of £196 billion. The top 1% of income tax payers pay a staggering 29.1% of total income tax. In any evaluation of what money is earned or is taxed, the wealthy do pay a lot and if they didn’t, it would be Armageddon for services supplied by the government. Pissing off the top 1% would be catastrophic for everyone else.

Source; government statistics.

@BruFord I guess if you go back to 'death duties' the super rich/millionaires thing was right.

Fast forward to now and significant wealth from the Boomer generation and before is cascading down the generations. It's not clear to me why it's massively unreasonable for some of that to be diverted to pay, say, the cost of sorting out Social Care for a aforementioned Boomers.

All the people lining up to say they are happy to pay inheritance tax. You do realise the tax isn't affected by your own personal opinions? It doesn't really matter if you are happy or unhappy about paying it, it gets paid whatever. Maybe it just makes you feel more virtuous?

Personally I will be doing whatever I can to get advice to be as efficient as possible about paying it. Its ridiculous that the gifting amount is 3k, same as in the 90s. My PILs are being encouraged to give as much away as they can and hope they live another 7 years

My inlaw are 70 and still in good health. MIL may well live well into her 90s if she follows her mother. The house they have signed over is one they spend their weekends at. They anticipate spending less time there as they age. I think DH fancies buying his brothers half and moving there ourselves one day. It is a very lovely house.

The inlaws already gift 3k a year to DH and BIL. Say they gifted a bit extra from time to time and then in 6 years die, how will this be tracked? I don't think DH has any idea what money he has had and when.

The Times is usually accurate with their speculation about future changes the government are planning and there's an article in today's edition reporting that the IHT gift rule may be extended from seven years to ten.

@AhBiscuits What will your bil think when he gets his CGT bill after he sells his share to your? It will be huge - it’s his second home and it cost him a lot. You, if you have it as your main residence, pay nothing. Not sure this division of assets is helpful to everyone. We sold houses and gave money realised, less CGT, to DDs and intend to live for 7 years.

@Bromptotoo I can see that point, although it probably won’t be the Boomers paying IHT at this point, it’ll be Gen X and Millennials inheriting from them.

Once again, the younger generations lose out ! Boomers got the best of everything tbh.

There are several different things going on here.

The "Gift Limit" is if you make a one-off gift, often out of savings. This is automatically disregarded for the purposes of Inheritance Tax (IHT).

There is then a further type of gift called a "Potentially Exempt Transfer" or PET. This is any amount of money that you gift to another person. As long as you live for seven years after making the gift then there is no IHT to be paid.

But if you die even one day before the end of that seven year period then the gift is added back into the value of your estate and there may be tax to pay on it (although at a reduced rate).

In some ways, the UK system is quite generous. You can pass on an unlimited amount tax free, as long as you survive for seven years.

For example, if Jeff Bezos (Amazon) or Elon Musk (Tesla, Twitter, SpaceX) lived in the UK and they gifted their entire multi-billion fortune to some random person then there would be no tax to pay at all – on one condition. That they survived for seven years after making the gift.

This only applies when an individual gives another individual a gift. So a gift cannot be made to or from a company.

So that is making any sort of large gift.
.

There is also another case where you give money out of your regular income. I believe that a pp has already mentioned this.

If you are giving regular gifts to somebody from your regular income and doing that does not affect your own lifestyle then there are no tax implications – it’s your money and you can do what you like with it.

In contrast, if you were to give somebody a very large gift (eg maybe a brand new car or a deposit on a house etc) that came out of your savings then that can potentially have tax implications if you die within seven years.

In the UK you can make regular payments of gifts to another person and there’s no limit to how much you can give tax free, as long as:

• you can afford the payments after meeting your usual living costs
• you pay from your regular monthly income

These gifts are known as “normal expenditure out of income”.

There is no limit to how large any gifts that are "normal expenditure out of income” can be, as long as you can afford it out of your regular income.

This primarily benefits people with a large disposable income who can then afford to provide regular "gifts" to their children in order to avoid IHT.

But how much of all income do they earn?

To get into the top 1% you need to be earning c.£160. The median wage is c.£35k. If you're earning the equivalent of 4 wages, surely it's logical you should pay around 4 times the tax?

The government can only claw it back if they can deem it as being intentional deprivation of assets

It's not simply that they can claw any financial gift back if it can be proven to be a normal way of living. In other words, helping out family is normal. Suddenly giving away the bulk of your assets in your 80s may not be

@AhBiscuits I'm very sorry to hear about your dad. We are going through similar with my MiL who died last month. I'm happy to pay some IHT (which is a good job as we will be - MiL was single so only one allowance to use). But it will be galling if things change significantly for the worse because of a small matter of timing re the budget. It depends on the effective date of any changes - I'm just hoping they won't take effect until April. We've already had some gifts (PETs) fail only 2 months shy of the 7 years, and because they were under the £325k allowance we'll effectively be paying 40% on them.

As for your question about how they track gifts, we read somewhere that they might request 7 years of bank statements, for instance. Given that these records exist (as do building society statements), and HMRC can in theory get their hands on them, we are just putting everything on there that we need to.

And how much capital gains tax did they have to pay to transfer it over? And how much stamp duty did your DH and his brother have to pay? And now the parents are paying rent which is taxable. And if you are not careful, whatever has been arranged could be ineffective for IHR savings.