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.

IHT is payable on death BUT if the properties increase in value between the date of death and the date of sale the estate will have to pay CGT on the gain. There are a few things you can do about this, depending on circumstances - such as appropriating to the beneficiaries to cut down on the amount of CGT payable...

Your relative who owns four properties will generally have a CGT liability if they sell the properties or transfer them in their lifetime. They will need to look into it very carefully before deciding to sell/transfer - best to seek advice of specialist tax adviser to ensure they take into account all possible reliefs and allowances before taking action.

Depends what assets there are. If any IHT due could be covered by cash at the bank - banks will often release this directly to HMRC to clear the debt. If it's based on a property you will need to fund a portion of the tax due - you can often pay it in 10 yearly instalments (but when the property is sold it becomes immediately due and there's interested added on top).

If there's no money, the executors can look at taking out a loan from a bank or other - solicitors often help with this BUT there's often an arrangement fee and the interest is quite high.

One thing I also discovered is that banks etc will often pay out up to £30k pre-probate, if executors sign an indemnity form. This can be helpful if you need cash not only for iht but other post-death costs.

I was starting to consolidate my mother’s accounts but was glad I hadn’t for very far as it meant we could get our hands on the cash earlier on to sort out various expenses.

This isn’t what they’re considering at all. They’re potentially removing the CGT uplift on death. So say for example someone dies and wants to pass on a property (not main home) purchased in 1990’s the new situation would be CGT would be payable on the difference between the 1990 purchase price and the value on death. Then IHT would be payable on the remainder on top. This is a mass departure from current situation and would apply to other investments too.

Many posters are assuming that the average estate liable for IHT has been due to untaxed income I.e. property increases.
We are above the threshold, all from taxed income. Business set up and sale where we have paid income tax, corporation tax, capital gains tax (when it was sold) and dividend tax. We are doing everything we can to ensure our children inherit as much as possible as we generated the money and have already been taxed on it. Paying IHT will be taxing the same money again.

Lying to HMRC is a criminal offence.

@Wetellyourstory I honestly don’t understand the tax twice argument. It’s like saying I’ve paid tax on my salary so why should I also pay Vat on anything as that money is being taxed twice.

Too true!

Duke of whatisface

The £9-billion Grosvenor estate will pass to the duke's son, Hugh. However, as the majority of the estate is held via a series of trusts, the standard rate of 40 per cent inheritance tax does not apply on the duke's death.

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

@Chenecinquantecinq Would that apply to a rental property, for example? I understand that many landlords are selling up already due to the Renter’s Reform bill so would that encourage even more people to sell? That could be good for buyers, not so great for someone looking for a home to rent.

What sort of other investments could be affected?

I’m not an accountant but I’ve read up a bit on this as it affects my parents whose pension is their rental property. Yes it would affect rentals and shares anything where CGT would be due now on a lifetime disposal. In a way it would make my life easier as my parents refuse to sell as it will trigger a hefty CGT bill at present even though they need to realise the capital. If after the budget it is the case CGT is payable on death anyway (or possibly more likely when beneficiaries dispose of the inheritance) then they’d be more open to selling up within their lifetime which is what they sensibly should do.

@Chenecinquantecinq It’ll certainly be a shakeup if such changes go through, people might plan differently.

But if you had kept the business and passed it on to your children (accepting that, of course, children don't always want to carry on in the family business) then there would have been no IHT to pay on the value of the business.

@Another2Cats I can understand that must be a bit depressing to build up a business, pay capital gains tax when you sell it, and then another chunk of the proceeds is taken when you die. Was it worth putting all the time and energy into it?

@Crochetina the point I am trying to make is that not all wealth has been created by being lucky with house price increases, which is what many posters seem to be implying. Many people have generated their wealth via other means, where tax has already been paid on the gains they have created.

@Another2Cats we didn’t want to pressure our children in to having to continue the business so they are able to forge their own career paths/choices. It was sold to a couple of employees to now take over the helm instead.

Did you get Entrepreneurs’ Relief @Wetellyourstory

Yes we did.

I think you may have meant to tag me.
You know you’ll be paying various taxes when running the business and when you sell it, we haven’t begrudged that at all. Being your own boss was definitely worth it, although does carry its own risks too.

No, my comment was meant for @Another2Cats , who said that you wouldn’t be liable for IHT if you’d kept the business rather than selling it.

My point is that having put all that effort into your own business, presumably to provide a good life for your family, I can see how frustrating it is to pay CGT on the sale proceeds when you sell it to employees and then your family pays IHT on those proceeds again when you die.

@BruFord CGT is payable on rental properties if they are owned by individuals. The same as holiday homes. On any gain they make less allowances. Anyone who solely has rental properties for a pension has poor advice. Invested pensions got tax relief on payments. Plus (currently) a tax free lump sum. Rental properties don’t. The parents who don’t want to sell are not looking at the whole picture. CGT is payable at less than IHT the estate would pay so sell and spend! That reduces IHT and get your wealth below £1m and you pay nothing if you have your affairs sorted out.

The gifting allowance is to reduce IHT. It helps people give a bit every year to reduce liability. If people have lots of money you just give and live for 7 years afterwards. Don’t die with a shed load of money if others needed it earlier.

It is frustrating which is why, in simple terms, it feels like the money might be taxed twice.
They need to ensure that any changes to the tax system doesn't discourage people from investing in businesses, saving for their retirement, putting funds into pension etc, which all benefit the public purse through people being less reliant on the state as they get older.

This double tax thing still makes no sense. Say I’m an employee I pay tax on my earnings. I then put money that I have earned and paid tax on into a savings account. And because that generates enough to be taxable, I pay another tax on the same money I have paid tax on. How is that different to this IHT double tax complaint.

Re IHT, it’s not the person who dies who pays tax again. The recipient hasn’t paid tax on that money before. It’s just given to them for no effort of the type an employee or business owner has put in. It’s just good fortune.

@Crochetina I appreciate that it’s not the same person who pays the IHT. My point was simply that it must be demoralizing to build up a business (which usually requires a lot of work) and know that so much that you’re created will be taken. Although they did receive Entrepreneur’s Relief, I suppose.

The tax is paid on the estate, so it is double taxed when IHT applies The interest earned on a savings account is taxed, not the original investment, so it is single taxed.

@BruFord yes, but by the same token, a saver could say that it’s wrong that theyve worked their socks off to, say, save for old age, and the interest is taxed. Taxed twice by the comparison with IHT, but they are both just taxes which have to come from somewhere. In the case of IHT, it’s those who haven’t done all the hard work and taken risks that entrepreneurs and business owners do that benefit. So on that basis, yes taxing this money is fair IMO. I do think though that a blanket 40% is wrong and some sort of sliding scale would be fairer on those who just fall into IHT.

I just hear this double tax thing all the time on this subject and can’t get my head around it.