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.

I never understand why people get so upset about inheritance tax. An inheritance is unearned income for the person who inherits - it's pure luck from their perspective a) that they have relatives wealthy enough to leave a large inheritance when they sadly pass away, and b) that the inheritance hasn't already been eaten up in care costs etc.

I genuinely don't know whether my parents' estate will be liable for inheritance tax or not, because I don't yet know what sort of care they might need while they are still alive. If dsis and I are lucky enough to inherit anything when they're gone, why on earth shouldn't we be expected to pay tax on it? Especially given that the only people who do pay tax are those who are inheriting very large sums of money - personally, I would have the threshold kick in at a much lower level.

I honestly just don't get why people feel so entitled to a tax free inheritance. Why not just count yourself lucky to receive anything at all, given that so many people don't. Personally, I will be grateful for whatever sum I may or may not receive from my lovely mum and dad, and if the state chooses to take a proportion of what they leave for the wider benefit of society, then I think they would be proud to be able to contribute in that way.

As for taxing my estate when I'm dead... they're welcome to take a fair chunk of it, because I won't need it when I'm gone and I haven't brought up my dc to be the kind of person who would want to profit from my death in any case.

Yes, agree strongly with this - I know many, many people who worked hard and weren't able to benefit from huge rise in house prices over the last 50 years. Roads, legal systems, schools and health care (to name just a few things) have to be paid for in some way for a society to survive.

I agree. And if its not taxed there the money will have to come from somewhere else, ie the money you work hard for and have to spread carefully and thinly.

My parents were quite obsessed with the idea of it. They were no where near the threshold but read all the newspaper articles, argued against it, nodded sagely at the TV shows.
They wanted to be part of the 4%, they wanted others on the cruise ship to think they were in the iht band.
Of course they were actually as tight as a gnats chuff, no generous Xmas presents. Deprivation of assets has long been used by them and the in-laws to justify not off loading significant sums when we, their children, really needed it the most.
After all, no one helped them out, they stood on their own two feet. As it stands we will inherit something between nothing and 1 million from multiple estates over the next ten years, the range absolutely could be that big. So no banking on that!

Fil 's estate will incur IHT and it's absolutely right for tax to be incurred on our unearned windfall. He first bought a house in the 70s for 30k, and made around 500/600k when he sold it - so he was taxed on the 30 but not the next 500. I would rather pay tax from our inheritance than from wages. I'm not wild about paying it - would rather have the extra money but it's much fairer than taking from workers.

The tax debate is driven by aspiration rather than reality.

People that earn nowhere near the higher rate tax threshold or who have assets well below the inheritance tax threshold will vote against on principle because it might have been them.

Otherwise, why would the interests of 4% of the population be driving the discussion?

The politics of aspiration - love that @DogInATent that totally sums up my parents conservatism.

@MrsBennetsPoorNerves I object to the current system simply because the threshold is too low. The £325K threshold was set in 2009 and look how the COL has increased since then.

I think that the threshold should be raised to at least £500K to account for the actual cost of living in 2024. Otherwise, what’s the point of financial planning? You may as well spend everything and then turn to the government to fund any care that you may need.

I wouldn't be surprised if the budget increases the threshold but closes a lot of the loopholes around AIM/unrecognised market shares, business and agricultural relief (particularly woodland), trusts, inherited pensions, and a really good look at some types of large gifts. There are some relatively easy wins there that can be presented as fair and levelling the playing field.

You say it's too low, but only 4% of estates actually pay it at the moment, so we will have to agree to disagree on that point.

I used to work in the Wills/Probate arena and it was staggering what people would do to avoid IHT. I would always explain that whatever the rules are now, they can change. Don't do something drastic to avoid something that a) might never happen anyway and b) might end up happening anyway.

So many people wanting to transfer their biggest asset (their home) into their children's names - even though that rarely works unless they also pay them rent. Completely oblivious to the problems this can cause - bankruptcy, divorce etc. only focused on the tax they may or may not have to pay.

I know of a situation where this was done but then their child died before them and her Will left everything to her husband. He is now forcing the sale of their property because, technically, it is his. All to save a few thousand in tax.

And the poster who said about care home fees being "only" £2k a month - HA! Try a week. I think LAs are going to become a lot more on it in terms of people depriving themselves of their assets.

@DogInATent ,Because the Tories leak info prior to budget does not make it right! See MN and WhatAboutery.
You all realise of course that we are one of the few countries that goes in for this BigTop Pantomime of setting a budget once a year and tinker with most rates together.
As I understand things other countries leave major tax rates that affect most of the population alone. They then change the rules at the need occurs.

You are very much mistaken.

If you google, the figures you will see that the rich really do pay IHT.

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 £7.5 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 £1.74 million or £1.87 million (depending on if married).

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.

Source: HMRC Inheritance Tax liabilities statistics Table 12.1
https://www.gov.uk/government/statistics/inheritance-tax-liabilities-statistics
.

"The very rich don't pay IHT."

For people with an estate worth more than £2 million then they were paying between 20% and 24% of their estate in IHT.

For those with an estate worth £1-1.5 million almost a quarter didn't pay any IHT at all and, of those that did, they paid 13%

For those with an estate worth £500-600k, more than 80% didn't pay any IHT at all and, of those that did, they paid 10%.

@DogInATent I think that would be a sensible approach.

Any decisions that use a figure set in 2009 are ridiculous-we’d all like to be paying 2009 prices for everything, but we’re not!

@MrsBennetsPoorNerves I know, but don’t you agree that using a figure set in 2009 is daft given the huge increases in the COL?

We wouldn’t want the government to calculate benefits at 2009 rates, would we, so why use a 2009 number for taxes?

No, they don't all pay IHT. The extremely rich have ways and means to avoid IHT.

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

Council Tax uses even older figures that are even more ridiculous!

I wonder whether they will do something around gifts too?
£3k is a low limit and the gifts out of income exemption is only for the rich too (I think a lot of private school fees are paid by grandparents using this).
Maybe a lifetime gift limit? At the moment you could gift £325k every 7 years - again, only available for the rich.

Anyway, I think IHT needs to be simplified - there are way too many myths surrounding it and as a result people do odd things to avoid it.

I would argue that the threshold in 2009 was far lower than it should have been. Personally, I think it's still too low now!

We are talking about a tax that affects the richest 4% of estates, so trying to draw comparisons with the arrangements to support the very poorest in our society are pretty spurious in my view.

Out of interest, where would you set the threshold?

@DogInATent You’re right, they were set in the 1990’s! The whole system needs a shakeup.

"...and it was staggering what people would do to avoid IHT"

Someone once said to me, which makes a lot of sense:

"Ultimately, the tax tail should not wag the dog..."

As you say, I think people may forget that at times. People should spend the money as they wish - whether or not they save any tax by doing it.

@BruFord It’s irrelevant what the actual valuation is. It’s what band its in that matters. So expensive revaluation (who does it?) still needs to put a property in low, mid or higher tier. So why bother? A terrace house won’t become a large detached. It’s all about comparing valuations not actual figures a property could get if sold tomorrow.

You could just say all London properties are band H based on value but what about ability to pay? Are we saying this is fair? Even council property would be band H.

@MrsBennetsPoorNerves The Bank of England’s inflation calculator shows that £500K today is approx. the same as £325K in 2009. So £500K would keep it at the same threshold allowing for 15 years of increases in the COL.

Good point about the £3K tax-free gift limit, @Fleurchamp, I wonder when that was set?

£3K was worth a lot more years ago.

To clarify, I haven’t lived in the UK for several years so none of this affects me personally. I just don’t understand why such old figures are being used. Especially for council tax, as @DogInATent pointed out!

How is it being taxed twice though???

By your logic I shouldn’t pay income tax because the money I’m paid has already been taxed in terms of VAT. Or when I buy an item of clothing I shouldn’t have to pay VAT on it because I’m buying it with my income that’s already been taxed. Or if I buy a house by disinvesting shares I pay CGT then pay Stamp Duty… again does that count as being taxed twice??? No money is taxed only once. All money is taxed multiple times already.

The “taxed twice” argument is so incredibly flawed I don’t know why people use it.

My dad's estate paid £45K in tax. We probably could have reduced it by using a clever accountant but I didn't begrudge it at all. Their house went from £4K in 1966 to £750K when we sold it, so the majority of their estate was property increase.
Our children will benefit in a similar way. I don't begrudge some of it in tax if it helps society at large.