Government looking at inheritance tax

[HarryVanderspeigle]

It says on the news today that the treasury are looking at reforms. Potentially looking at increasing the seven year rule, or a lifetime gift allowance. I don't really see how that would work as we all know that wealthier people will spend more on their children for things like weddings, university expenses, getting on the property ladder etc. But if it is to be reformed, how would you do it?

I often wonder if the objection is because 40% is so high. Would it actually raise more if it became 20% on estates over £100k? I can't see them putting the percentage up and we all know that very rich people find loopholes anyway.

Maybe they are looking at some of the loopholes the rich exploit?

Unlikely, since they'll happily use those loopholes themselves.

Even if they did close some of the loopholes, rich people's accountants will find more to exploit. As usual, it'll be the people in the middle who end up paying more.

I would give each person (over 18) a maximum amount of gift/inheritance that they can receive tax free during their lifetime. A lifetime allowance for the individual recipient- not for the giver.

Gifts/inheritance to under 18s would be counted for this purpose as soon as the recipient reaches 18.

I would not include in calculating lifetime ‘gifts’ any sum paid to a university by a parent for university fees, or any sum up to a certain maximum, say £10,000 per year, paid by a parent to a child aged under 25 in full time education.

I would include life insurance benefits in this (ie as going towards using up the tax free allowance) unless payable on the death of a spouse.

I would also include in this the total amount of any trust fund held (including on discretionary trusts) for a person aged over 18.

My limit would be pretty high- maybe £500,000 per recipient, plus a further £200,000 allowance in respect of an inheritance from a spouse where children are aged under 18 on the spouse’s death.

After a person’s lifetime £500,000 allowance was used up (or £700,000 on death of spouse with children aged under 18) everything else given to that person, or inherited by that person, would be taxed at 100%.

Every gift, every inheritance, every trust.

My intention behind this policy would be to prevent wealthy people who inherit property from monopolising the housing market, driving up prices, & making it impossible for young people to buy homes.

I would also finesse the rules in the case of trusts established by parents for disabled people.

If a person is domiciled outside the UK for tax purposes, my rule would apply to any gifts or inheritance they derive from assets in the UK. So if for instance a Monaco resident inherits a £1,000,000 house in the UK, there would be a £500,000 tax bill payable in order to administer the estate.

I think the huge influence of inherited wealth is devastating ordinary young peoples’ futures. I also do not think anyone (in the absence of disability or the death of a spouse when children are aged under 18) needs to inherit, or be given, more than £500,000 to help them along in life.

oh, and I would have a form of agricultural property relief, because I think family farms protect against corporate agribusiness, but this would be available only where the land is inherited or given by a parent or grandparent, & only for so long as the land was used for agriculture: and if it stopped being so used, or was sold outside the family, the value of the inherited land (possibly at that later date, but I have not decided that) would count towards the £500k.

Phew! I’ll go and feed the cat now.

@PrinceRegentLady

So many issues!

For example you state "I would also include in this the total amount of any trust fund held (including on discretionary trusts) for a person aged over 18." I have no idea how you could do this as the whole point of 'discretionary' trusts is that there is no specified beneficiary! A beneficiary could only be assessed if they actually received money or would you tax everyone included in a class of beneficiaries before they received anything? I can't see that happening!

A Monaco tax resident is more likely to own UK property through a company whose shares are owned by a foreign company - again no realistic way of taxing it or even knowing if it had changed hands!

Anything 'lifetime' is way to difficult to administer. Noone has such records.

I'm never going to worry too much about the likelihood of our descendants needing to pay some IHT, if they do, they will be very lucky DC.

I am not opposed to inheritance tax, I will be dead, so it's essentially free money for the dc's. Unless thresholds are lowered, my estate wouldn't be big enough anyway. I don't see them going after whole of life gifts as they actively encourage it now with junior isa's and pensions.

I would treat a house separately from other assets such as your savings.

One is confident that they won't dare monkey about with mine!

You would give agricultural relief but not relief for any other business? You do know that small businesses employ millions of people who would potentially be out of a job if 40% of the business had to be paid to the taxman when the owner dies!

Taxing insurance? If not put into trust, that happens already. Anyway, if 40% of any insurance would go the taxman, people will just stop taking out insurance. As a country we are already massively underinsured and this would just widen the gap.

There is no easy way to raise another £40 billion in tax if you are not willing to tax income more across the board. The removal of cliff edges would at least eliminate some of the measures people take to avoid losing childcare and/or pay 60% tax altogether.

It shouldn't exist and I'm fully in favour if it being scrapped - damned if I'm paying a single extra penny to the government when I've already paid tax on it! I've just gone through the process of avoiding it with my DPs which thankfully is still legal but it's a right pain in the arse. I don't know why anyone would willingly pay it, all the government do is squander the money anyway.

HMRC released figures last week stating that in 22-23 tax year IHT increased by 13% on the year before. In the 23-24 tax year, investigations into underpaid IHT were up by 41% - in short the government know this is an area ripe for picking. I expect RR will reduce the taper relief percentages, and eventually lower the threshold (she's said before this will stay the same until at least 2030).

How would this ever be policed? Would everyone have to keep records of all gifts with supporting evidence from when they were 18? With a dozen house moves, maybe country moves, marriages, divorces, and any number of relatives giving ad hoc bits here and there. Would everyone have to declare the running total every year? Sounds totally impossible. It's hard enough to track gifts a deceased person made in the previous 7 years, particularly since most people are pretty much unaware of the rules on gifting and people have multiple bank accounts.

The problem I have with IHT is that originally it was set up to tax the very wealthy. Now, it is affecting middle earners, and if extended as some suggest, even relatively moderate earners, who have saved over their lifetimes, and are fortunate to die without needing high care costs. Meanwhile the very rich will set up offshore accounts, Ltd companies and trusts to avoid paying on all their assets. It will just keep us plebs in our places, and stop our families benefitting from moderate inheritance.

But the threshold is £325k, so nobody will be stopped from having modest inheritances.

If IHT on "gifts" is changed, there'll just be more loopholes to exploit to avoid it. Instead of "giving" money, people will start paying for the holidays of their children/grand children, or buying them more lavish Christmas and Birthday presents, etc. There's always a way! And of course, currently "gifts out of income" are exempt anyway, so more people would exploit that rule. It's another case where they'd probably let less IHT because more people would become aware of the ways around it and take pre-emptive steps!

It’s a shit idea, but I’ve no doubt they’ll attempt to push it through. I have already paid a fuck ton of tax on that money, money which I earned myself, why should it be taxed again??

People will just spend it. Plus it will disincentivise people from saving into their pensions which is not a good thing.

Most people who pay IHT will be because the value of their house went up without them needing to do anything. Nothing to do with taxed income.

Anyway, as discussed on PM today, this is "kite flying". Let journalists know about a policy that's being considered and see what the reaction is to determine whether to push ahead with it.

HMRC can and do go through the financial transactions of deceased people, if they suspect inheritance tax has been underpaid and I can imagine they will be more aggressive if Reeves goes ahead with the reforms. Paying for other people’s holidays or school fees etc will be flagged up @taxguru

Inheritance tax is cruel, your kids should be entitled to whatever's left after care costs.

Only 4.8 % of those that die each year ( half a million) pay inheritance tax

id reduce the amount % and lower the threshold

@SwedishEdith Well, I’m clearly not “most people” because the vast majority of mine is from earned income. So, the question stands, why should it be taxed again?
And yes, the value of houses goes up, but people have usually paid for those houses, including the interest on the mortgage, with taxed income.

You do realise that the first £500k (£1m if married) of an estate is handed down tax free if to children?

My sister lives in Ireland and her husband has recently received an inheritance from his father.
There is a lifetime threshold of €400,000 from parents (increased in the last budget). Anything above that is subject to tax at 33%. He has received €750,000 so will pay €115,500 in inheritance tax. When his mother dies he will probably inherit a similar amount but will pay tax on the whole amount.
His parents have gifted him (and his siblings) €6,000 each for the last 15 years - that is totally tax free and does not count towards the lifetime threshold.
I can't quite work out is that better or worse than what he would pay here.

Only 4.8 % of those that die each year ( half a million) pay inheritance tax

Exactly. A lot of noise that hardly effects anyone.