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 mean the deceased money and assets are taxed before they are given to someone else. At the moment this only happens to 4 percent of estates and the really big estates seem to pay tax at a lower rate than the smaller ones. I presume the government will seek to make more estates subject to IHT and take a bit from the smaller estates as the really rich like our dear Sir Keir can protect their assets better. Didn't Sir Keir write a special law to protect his pension? I wonder what percentage of estates will pay tax after the new budget, it will be interesting to see

@Crochetina I agree that a sliding scale seems fairer, especially if the threshold isn’t increased. The smaller estates probably don’t have accountants finding loopholes or protecting assets in trusts like v. large ones.

Can you pls explain? If the gift limit is only 3k per year how can v large amounts of money be transferred? surely it's only 3k x 7 = 21k. ??

You can give away whatever amount you like. If you survive seven years or thereabouts on a sliding scale, the money is not counted as part of your estate for inheritance tax.

I'm very left wing & one thing I strongly disagree with is inheritance tax universally applied. It should be kind of means tested.

As in, probate should be able to look at whether tax was paid or was it a limited company & all profits went off shore.
Sadly too common.

But for people who have already been taxed on their earnings and wish to leave a bequest to their kids, I find it abhorrent that this be taxed again.

I support a very high tax rate for the top earners and a sliding scale down
and a raise on the level which no tax is paid for example circa £30k

People have already been taxed on their earnings.

Didn't Sir Keir write a special law to protect his pension?

David Cameron granted KS an exemption.to the lifetime allowance taxation limit for the DPP role, which he held 2008-2013. My understanding is that this was a standard exemption for the DPP role..

Since becoming an MP, that is the pot which he will now be accumulating, same as hundreds of others.

edited to correct first para

In any event, the lifetime pension allowance was abolished by Jeremy hunt in April, so I assume KS is now in the same boat as others with that size of pension pot,

You give your children £10m, you survive 7 years, no IHt due. Even if you don't survive the full 7 years, the longer you survive the less IHT is due (it's a sliding scale).

My Dad died this year and we don’t yet have probate.
Our tax advisor’s best guess (as no one knows for sure!) is that it will be the date of death not of submission of the forms that decides the probate rules.
So date of death before the budget- current rules- afterwards- new rules.

The "smaller estates" don't even pay it. Only 4% of estates fall into IHT.

For a married couple who leave their home to offspring, there is a one million pound tax free allowance. At the minimum (single person, no property or no offspring) it's £325k. I think that amount tax free is, frankly, enough.

The rest, OVER that amount, is then taxed. You don't fall into IHT and then pay it on the whole estate as this comment seems to imply:

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.

People do really need to read up and understand this better. It causes so much angst yet the level of actual proper understanding is extremely low, especially around gifts (no tax on gifts) and people muddling up the 7 year survival for IHT with the deprivation of assets issue (they are not linked at all).

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.

I think you may have misunderstood my point or I didn’t put it across clear enough. I’m not saying this is any different, I still think IHT would be unfair in this scenario too.

My point was for those posters saying that most smaller IHT liabilities are because people have inherited their parents houses that increased in value I.e. did nothing to generate the wealth themselves. This is not always the case and the tax system shouldn’t penalise estates where people have saved, via any means, for their future but may not live long enough to enjoy it.

Thanks @Wetellyourstory
I may well have misunderstood and it’s Probably my way of thinking, but surely an estate is not something that can do anything with its money as it is not a person. it would be the recipients of that estate having been effectively taxed before they have access to its value. And these intended recipients haven’t paid tax before or done the hard work or saved or invested well or whatever to have achieved the value of the estate. They just happen to be the offspring of those who did, and sadly perhaps died before they were able to enjoy it (or have to spend on care or whatever). So they are receiving the value of the estate, tax free. It is those who died who paid the tax.
I get the point of course that family want to leave as much as possible free of tax. And as ever those with the most seem to avoid tax the most.

Presumably deprivation of assets is only an issue if people want the state to pay for care.
So if my mum gives me all her money, lives more than 7 years it’s free of IHT.
Then she needs care which I pay for as she’s my mum and I have the money (which she gave me!) It’s fine.
For example she’s just passed my Dad’s pension pot to me as that’s not in his estate. I won’t touch it in case she needs it.

If you pay tax in respect of a savings account then that's a liability based on the interest which is new money and, unlike the principal, it's not been taxed before.

I can sort of see the logic of the 'taxing it twice' argument if IHT were applied modest amounts. If, say, we look 'life savings' people have from putting few quid out of every pay packet into the building society on pay day and earning a bit of compound interest so the die with £30k in the Halifax and they were slapped with IHT I'd have some sympathy.

But when IHT starts well north of £300k, with further concessions for their houses, we're talking gains in property prices and or capital in proper investments like stocks/shares. If full use was made of ISAs ans their predecessors a lot of that money had tax concessions during the testators lifetime.

We have a family farm which currently employs 3 generations all of which live on the farm. Valuation for our accounts list assets in excess of 3.5 million split between 4 partners.

If agricultural relief is removed, when even one of the partners dies then the farm will have to be sold with the result that 7 people will both be out of a job and homeless. Yes they will have a share of the proceeds of the sale but it will the end of 6 generations working that particular land. Farmers are fiercely proud of their links to their farms.

I agree that a percentage of farms have been purchased by the rich simply to take advantage of the relief that's been available up to now which has also had an uplift effect on the price of land. Friends of ours farm near where JCB have their factory and the Bamford family have bought up anything that has come on the market over the last 10 years to the point that no locals can afford to buy a house or land as they offer inflated prices to secure it.

I would like to see some sort of test or rules to allow active farmers to have exemption from IHT if they can prove their income is derived from the land.

@HalfasleepChrisintheMorning I think it can be more complicated than 'want the state to pay'.

My late Mother out Law had Dementia and spent the closing years of her life in a Care Home. Fess then were over £400/week. As she'd a good pension of her own, an occupational widow's pension from her late husband plus sale proceeds of a house she could self fund, albeit eroding her capital to do so.

If she'd only had the State Pension and £40k in the Britannia BS she'd have been knocking on the Council's door pretty soon.

If she'd given most of that £40k away in the year or two before going into care then I think deprivation would easily be asserted.

When the house was sold it was because she was losing her faculties and not managing alone but was OK for another few years in a sheltered rental where we could keep an eye on her. Had she offered us cash we'd have rejected it because she was evidently ill and would need a care place soon.

My Mother was mentally sharp until the day she died. She had some physical problems, particularly very poor mobility, but was fiercely self sufficient. We had no qualms in accepting generous gifts now and then like if we bought a car or when my OH wanted to travel to another continent for a professional conference.

This describes my likely situation if changes come in. My inheritance is likely to be affected and it will affect the kids’ inheritance too. I’m ok with that because as I said, I’d prefer taxes to be raised and for public services to be improved. You can’t have brilliant scandi-style public services with US levels of taxation 🤷‍♀️

Ah, well, @Apolitia, I’d agree with you providing I was further back in the queue than large corporations who trade in this country but deliberately pay tax elsewhere.

But when IHT starts well north of £300k, with further concessions for their houses, we're talking gains in property prices and or capital in proper investments like stocks/shares.

And this is exactly what I’m trying to counter, no it’s not.
What about a business owner who took a modest salary throughout, reinvested profits back into the business to grow through new machinery and created more jobs. That asset, when sold, goes into the IHT calculation.
99% of businesses in the UK are SMEs. They account for nearly half the turnover in the private sector and employ 3/5th of the UK labour force. For the economy to grow, you need these to be supported and encouraged, not possibly penalised by excessive taxes so it can be portrayed in the media as going after businesses or the wealthy who can employ tax specialists.

My parents and I were always encouraged to save so that we could provide for our own old age and not be a burden on the state. Well as a family that is what we did. Very small pensions from employment in ever changing industry.
But by living carefully, no expensive holidays or flash cars Parents have 3 houses and some savings.
Dad will soon go into a Home, Need to sell one of the houses, will then have to pay higher CGT to this government. Less money will be available for parent's care. Next house to pay for Mother's costs. Big whack again to Govt. Brother and I not likely to see much of it.
Why did we bother? Starmer & Reeves handing out benefits to all. We the frugal get penalised.

@Wetellyourstory If somebody can make a case for the IHT treatment of SMEs etc discouraging investment I'm all ears; lets see what can be done to mitigate those effects.

However most debate here has been about family wealth in the form of cash/investments or the family home. If anything those situations are treated too leniently.

The whole shooting match needs reform and not just tinkering.

If somebody can make a case for the IHT treatment of SMEs etc discouraging investment I'm all ears;

I referring to taxes, not just IHT. Rumours about removing the tax benefit of investing in AIM and employers NI contributions increasing are two examples so far that I have read which will impact SMEs.

I agree, that would be so wrong for your farm and others like it.

Knee jerk reactions. Gifting a property to your children and renting it back? If you do this legally, your children will be taxed on the market rent. Which could quickly amount to more than inheritance tax and if you die within 7 years, you will still owe inheritance tax.

You might also get in a pickle if children divorce as your home is their asset.

Professional advice over gifting the house in simple will involve Bargepoles.