Wealth tax holes

[RowsOfFlowers]

Yay, just what the UK needs… more super rich and wealthy people avoiding tax.

’family trusts’ seem like a big source of perpetuating inequality. I’m not sure if there’s any realistic way of getting rid of them. But - I don’t really know the rules on them, but I thought there was a periodic tax on them over the years - maybe that could/should be increased to make them less attractive?

If it's to allow a business to go on functioning then to be honest it may be a legitimate means to an end.

If it’s genuinely for a business there should be some means which isn’t a ‘family trust’.

Feels like a massive looophole to me to that needs to be addressed.

What about the ten year charges the trusts will pay such that over 65 years (broadly a lifetime) it will have paid the same inheritance tax as if he’d passed it on to his kids on death? Is that not a fair way to counter the inheritance tax benefit?

Oh, and that if he’d died 6 months ago there would have been no tax to pay anyway, so he’s probably just wanting to pass the wealth on in a way the tax can be managed so that the business can continue to run, but with the tax still paid over an extended period of time in a way that has real economic consequences.

It’s almost like you can’t quite trust a headline…

And it’s not just for the rich, you too can give your assets to a trust if you don’t want them any more.

There was. Then Labour abolished it 8 months ago.

What have Labour actually abolished; are there yet clear proposals as to how things will be implemented?

Hmmm

The IHT changes for farmers and small businesses mean that business assets, which previously would have been exempt from IHT (so that a business could continue to trade after the death of an owner) will now be subject to IHT above a trivial (in the context of a business) level from next year.

Under the old rules a privately owned business could be left to successors without a large tax bill, and continue to trade / invest / employ / pay VAT, PAYE corporation tax etc. From next year they will face IHT on the death of an owner. For most business the only way to pay that bill will be to sell - since the owners of most SMEs don't extract large chunks of cash every year, depsite the what the wails of the envious left who have never built a business would have you believe. They dont want to build up wealth outside the business because they continue to invest those profits in their own business. At the end of the day, this extraction of large chunks of cash in either one big lump or over time via trusts means less investment in SMEs. Which doesn't seem like a great plan for growth...

Now, the business referenced above is not a traditional SME, and maybe does have, or could borrow, sufficent liquidity. But the vast majority don't. Tax planning and giving away asset earlier in life currently mitigates this, subject to the 7 year rule which itself might change. But that's no help to someone in later life with a change taking place next year. The use of trusts also smooths the impact, but it still means less money in companies to invest, grow and create employment.

It's a very difficult problem to solve.
The rules are made by the wealthy and powerful, a group who are far removed from and have little insight into the lives of normal people. This means that the laws are made to protect preserve and further the wealth and power of those who already hold the wealth and power.
They end up feeling like gods looking down on the rest of us, scurrying around like little ants, doing their bidding so that they can stay rich and powerful.

Why do people think a person should give their earnings to the gvt, rather than their family, after they’ve already paid the gvt tax on their earnings?

It’s bizarre. People have paid taxes upon taxes throughout their lives, wth should their family pay taxes on the inheritance that’s already been taxed before the person died?

I’m not saying people shouldn’t pay taxes in their lifetime. But IHT is a disgrace.

Agreed.

This isn’t really about SME though - I feel they ought to be treated differently as they do need to generate more money to keep going. This post is about the super rich. £80m is a significant load of money.

What about in the case of billionaires then? Quite different to Joan & Bob down the road I think.

Inheritance tax only affects the very wealthy, if the stars align I'll inherit half a million from my parents without paying any inheritance tax at all.
That will leave me in an extremely comfortable position, if anything it's disgraceful that I can potentially inherit that much without paying tax 🤷🏻‍♀️

It’s not £80m of cash though. It’s £80m of value that requires you organise Glastonbury every year to make any money. If you stop doing that, it’s actually worth very little indeed. He could stop running the festival and probably pay comparatively very little IHT. But then there will likely be a negative impact on the local economy.

But again. HE’S NOT AVOIDING THE TAX. He’s paying inheritance tax in a different way that is more predictable.

How are these billionaires avoiding IHT?

Not true. I'm a full time working single mum with a house and a mortgage. Not even a very big or flash house but it's in a relatively expensive area, purely by chance.

My income is less than £60kpa. Hardly super rich.

If I die tomorrow, my son's home will have to be sold to pay the IHT.

The Barons will try the Barons because the Barons understand. Most likely not an accurate quote from '1066 and all that', but I was reminded of it by your post.

Income from family trusts is taxed at anything from 39-45%.
Capital gains tax is also payable and IHT is charged on assets transferred in and out, and at each 10 year anniversary of the trust - so the suggestion that trusts enable people to avoid tax is inaccurate.

Whether one likes it or not, high net worth individuals are vital to the UK economy. Some of these people pay millions in tax every year. The decision to tax them more has led a number to leave the UK leaving a gaping hole in Treasury receipts. That is why Rachel Reeves is having to tweak the decisions made last year.

Inheritance Tax in UK is very high compared with the US and many other European countries, particularly where assets are left to direct family members. A child inheriting a two bedroom flat in London from a single parent will end up having to pay IHT on the value above £500000. This is actually pretty punitive.

https://www.euronews.com/business/2024/04/16/inheritance-tax-across-europe-how-do-the-rules-rates-and-revenues-vary

Not that I'm rich, but I did look at trusts and came to the conclusion that what with the taxes on the trust, which are pretty high and the costs of setting it up it really doesn't make a lot of difference to the total tax paid, it's just paid differently.

Trusts and Inheritance Tax - GOV.UK

ChatGPT is here to teach.

In the UK, discretionary trusts (the most common kind used for family wealth and land planning) are subject to an Inheritance Tax (IHT) “periodic charge” every 10 years. This is not a payment on income or capital gains — it’s on the value of the trust itself.
Basically, every 10 years, HMRC pops by like:
“Ello! Just checking in on that nice juicy trust of yours. How much’s it worth now? We’ll take a slice, thanks.”

How It Works:

• Triggered: On each 10th anniversary of the trust’s creation.
• What’s taxed: The value of the trust's assets minus any reliefs (like Agricultural Property Relief or Business Property Relief).
• Rate: A maximum of 6% on the relevant value above the nil-rate band (£325,000 as of 2025 — though it may shift).
• The first charge happens 10 years after the trust was created, and every 10 years after that.

A family trust is a legal arrangement where assets are put into a trust to be managed by trustees for the benefit of named beneficiaries.
It’s like saying:
“I technically don’t own this anymore — the trust does — but my family still controls it, benefits from it, and (hopefully) doesn’t sell it off to buy a villa in Marbella.”

Control & Protection

• You can prevent your land being sold off by a daft heir who wants to “invest in NFTs and alpaca yoga”.
• Divorces, creditors, or in-laws can’t snatch the assets if it’s safely wrapped in a trust structure.
• Helps limit IHT exposure across generations

Expensive to Set Up and Maintain

• Legal fees, accountants, sometimes specialist tax advice. Not DIY stuff.
• Annual tax filings, potential income tax charges, and periodic trust charges.
• Anti-avoidance rules can bite if HMRC thinks you’re just stuffing the trust to dodge tax.

Not Bulletproof

• The law and tax rules around trusts change. What works in 2025 might get nuked by a future Chancellor.

Absolutely agree — spot on.
Family trusts are far from a magical tax loophole. With the 45% trust tax rate, capital gains tax, and the 10-year IHT charges, they’re actually heavily taxed structures. The narrative that they’re just vehicles for tax dodging is misleading.
And yes, like it or not, HNWs do shoulder a big part of the tax burden. If too many pack up and leave (which is already happening), the Treasury isn’t just losing their income taxes — it’s losing their spending power, investment, and philanthropy too. The irony? Chasing them away ends up costing everyone.
Also, totally agree on IHT — it’s punitive. Especially for middle-income families with modest London properties. No yacht, no mansion — just a two-bed flat, and still slammed with tax. Not exactly the “super-rich,” are they?
The system definitely needs a rethink — not for the ultra-rich, but for the fairly average families stuck in a broken framework.

Yes, I agree with this.