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 understand your point about inflation. My point is that I'm not bothered by the impact of inflation meaning that more estates need to pay inheritance tax because I think the current thresholds are too low in any case.

I would add that couples passing on estates to their children can pass on a lot more than £350k without being liable for tax, so I think the allowances are pretty generous at the moment.

@Cookerhood Yes, I hope that @DogInATent ‘s suggestion that the Budget may close some accounting loopholes is correct. If an estate is liable for a certain amount of IHT, it should pay it.

The gift limit might be £3k. But the seven year rule allows for very large transfers of wealth completely free of IHT, plus there are various other loopholes for gifts (e.g. normal expenditure out of income) - but these are only available if you have sufficient wealth to allow for it.

@MrsBennetsPoorNerves So you also think that the thresholds are too low and want to increase them?

MN is notorious for 'loving' inheritance tax. There are so many people below that threshold here that they see it as a 'stick it to the rich' thing.

I agree, it sucks to be taxed twice. Capital gains I totally get and support, inheritance tax, noooo, that's just opportunism.

@DogInATent Here in the US, the annual tax-free gift amount has gradually increased. In 2024, it’s $18K compared with $14K in 2014. I think that makes sense, tbh, it’s slightly below inflation.

Which care home would that be? Care himes in the north cost around £5000 a month. Much more expensive in the South East. Average stay is 30 months so £150000. £300000 for a couple.

You missed out a word, it's "the tax tail should not wag the investment dog", i.e. don't make investment decisions based on tax treatment.

You give one example there of the Grosvenor estate which is said to be worth in the region of £9 billion.

There are the family trusts which hold most of the money and then there is the personal wealth of the family members.

Probate records show that the last Duke of Westminster left an estate worth around £600 million in trust to his children with the income going to his widow and she is allowed to remain living in their home.

When the widow passes away then there will be IHT to pay on that £600 million.
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With regard to the trusts that are said to be worth £9 billion, these trusts do pay 6% tax on the total value of the trust every ten years (or at least most of them do).

The trusts also have to pay income tax on any profits at a flat rate of 45% and there is also CGT to pay as well if they every sell any assets.

So while, IHT itself is not payable there is a 6% charge every ten years. This works out to paying the same amount but spread out over roughly 66 years in advance rather than paying it in one go on death.
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But not all of the trusts pay that. Why? Well, that's not down to being a trust but down to other reliefs that are widely used - Agricultural Property Relief and Business Relief. If you own a farm or a business then you don't have to pay tax when you die and trusts don't have to pay the 6% tax every ten years.

Different countries have very different views on inheritance.

I'm sure in Germany inheritance tax applies to the inheritor rather than the estate, and each individual inheritor has their own allowance.

Don't know why you're saying you could gift £325k every seven years, you seem to be confusing different rules.

You could gift £325k every day if you wanted to. Or £1m. You can gift anything you want, there's no tax on gifts. There is potentially tax on property transfers, but cash - nada.

But, gifts made are treated as part of the estate, on a sliding scale, if the giver dies within seven years.

Regular gifts from income that don't reduce the giver's standard of living are also tax free. My mum used to gift £250pm per GC from her pension income.

I wasn't going to bring Balfour into it...

But if there are any significant changes to agricultural or business property relief there could be a flurry of estate planning amongst the large estates.

Capital gains I totally get and support, inheritance tax, noooo, that's just opportunism.

Inheritance tax is largely a tax on capital gains, though. The fact that the value of my parents’ house has more than tripled in 30 years and that their investments have grown roughly in line with stock market growth for even longer than that are gains in capital.

Would people prefer we paid annual property taxes on the market value of property like in the United States? That way the gain would be taxed during the owners life time. No PPR exemptions !!

As a PP said, because of the doubling of the IHT band for spouses on the death of the second spouse, plus the element of exemption for the primary residence… the effective nil rate for IHT is a lot higher than £325k in many cases.

"But if there are any significant changes to agricultural or business property relief there could be a flurry of estate planning amongst the large estates."

Oh yes, that would definitely change things a lot.

As for freezing thresholds - lots of thresholds eg income tax bands, lifetime allowance have been or were frozen for a while. The country needs tax revenue.

https://www.ft.com/content/13acecf9-ed5b-4fb7-8df3-d21be0f0f6e0

Two-thirds of the adult population is set to pay income tax in 2027-28, compared with 58 per cent before the freezes started, according to the Institute for Fiscal Studies. It added that the number of people paying higher or additional rates of income tax has more than doubled since 2010.

Yes, essentially a tax on unmarried people.

I can't see them not making changes here.

Putting an allowance on business and agricultural property inheritance reliefs to protect small family businesses whilst extracting a share from the largest estates looks fair to the average voter. It doesn't impose on the Politics of Aspiration because whilst everyone might aspire to a £1m house they're not holding out for the dream of owning Cornwall.

The tax is not on the person who died, it is on the estate, and impacts the recipients.

If a child is inheriting from both their (divorced, say) parents, then each parent’s estate has the nil rate band.

So how is it a tax on married people? The spousal allowance is because it is assumed the estate of the first spouse to die passes in full to the other spouse and that their house is owned jointly. It is effectively two estates merged into one. Hence two tax bands added.

@IAmNotALoon you may have covered this already but how far back did they go and what was your Mother's state of health when the gift was made?

I'm not so sure that's quite right.

We have friends who live in Maryland, USA. I just did a quick google and it says on Zillow that the median house price in Maryland is US$420k (£322k). It then says that the property tax where they live for a house worth that much would be US$3,400 (£2,607) per year.

Where we live, council tax for a band D property this year is £2,116.

That's not really much of a difference at all.

I think you can get leeway in terms of time. So house can be sold etc. I think it’s often a year but might be wrong.

It looks like that because it was badly described by the previous poster you quoted. The allowance is not doubled, it's just that the allowance of the first spouse to die doesn't have to be used immediately because one of the legal benefits of marriage is that spouses inherit from each other free of IHT. It's still two £350k thresholds whether the individuals are married or not.

If I take money out every month - a few grand, and gave it away. How would the tax man know that I hadn’t gambled it on fruit machines? Hypothetically of course. I don’t have a few grand full stop.