The really rich don't pay inheritance tax

[ninna]

The really rich don't pay inheritance tax. I have heard this many times on the radio. For instance, I remember someone saying that the Queen mother probably wouldn't have paid any.
I gather it's something to do with trust funds but have never heard an explanation of how it's done and why it's allowed.
It has always seemed very unfair to me. The labour party is supposed to be about fairness. I wonder why they haven't done anything about it.
I wonder if anyone can explain what's going on?

If you are very wealthy you can afford to plan your inheritance. You can set up family trusts years in advance.

Middle class people, whose wealth is probably mainly a house they bought long ago and has risen enormously in value, are less able to do this, as it means changing the ownership of their home. It can be costly and fraught with problems.

If you have several millions or more to leave, you are able to cover yourself adequately. If you just have one house which happens to be in an expensive part of the country it's not so easy.

But if you are the owner of an asset worth £750,000 you are hardly the poorest of the poor, are you?

You can set up trust funds which in effect is handing over your money to those you want to have it and you have limited control over it and can't have it back. If you set up a trust for your children's education for example, then you can never dip into that money. It will be cared for by executors and used for the sole purpose you specified.

I always felt inheritance tax was a cruel thing. Why should someone work hard and save something to pass on to a loved one, just to have it swallowed up by the Government. The earned cash has already paid tax a few times over!!!

Also, if you have over your dosh and die within 7 years, your loved ones still have to pay the inheritance tax.

Thankyou for giving me some idea as to how it is done. I understand that it is allowed within the rules. Some of the worst abuses of expenses by MPs were allowed because they were within the rules. I still think it unfair that we should have rules which allow the rich to ring fence their money and that they are able to do it because they are very rich.

My husband thinks taht the best way to change the tax system is to make it simpler.

Rich people usually end up paying less tax as they have lots of investment allowances that they can use. Apparenly Labour have DOUBLED the size of the UK tax law in the time they have been in power.

Have you heard of flat tax..? Everyone has a simple allowance of say £7k then everything else is paid at a single flat rate of say 20%.

No further allowances, no further taxes a very very simple ssytem with nowere for the rich to hide. You make money you pay tax...

People like Phillip green and bernie ecclestone who are worth billions may next to nothing in tax. A simple flat tax would ensure that these people are screwed for all they should pay !!!

I'm all for a flat tax, it would work beautifully and cut the bureaucracy hugely which would cut costs to the country.

Another great idea would be to abolish income tax and national insurance which would negate the need for HMRC which cost us billions and billions to run and they screw up more often than not and get confused by their own rules.

Then we could just have VAT at 30% which is easily collected as the business owners do that themselves.

VAT at 30% ?

Wow, that'd be a winner with the electorate, I don't think!

20% would make it easy to calculate in your head, without quite as much encouragement as 30% for trying to avoid it.

It's bad enough when you see some item online in the USA for $100 and then, despite the exchange rate, the UK price is 100 pounds. If there was VAT at 30% they'd use VAT as an even greater excuse for it being 110 pounds!

(remember iTunes USA was charging 99c and originally in Europe felt 99p was "OK"... even now, I think EU members pay 0.69 Euro, ie about 55 to 65p, but the UK price is 79p isn't it? I don't touch iTunes {no iPod or similar} but given the artists get less than 15c from the US 99c price, felt a lot of this was profiteering, and different currencies make it far easier)

But losing income tax and ni would be fantastic!

A flat rate of perhaps 30% for income tax would likely bring in more.

Someone earning millions loses a bigger chunk in tax on income at present. They'd only pay VAT on things they buy, services they use, but nothing other than stamp duty on purchasing property, so could build up a portfolio, put those properties into a trust fund to pay out for care homes and their children, and the VAT aspect would be avoided.

It might be easy to collect, but the range of complex taxes with capital gains, etc, and then various reliefs such as for pension contributions, is what makes some of the avoidance so easy.

If there was a significant reduction in the range of taxes, I bet the multi-million pound end could be better targetted so they cannot avoid paying. Doing it via VAT might have some chances of working, but I still have many doubts.

No income tax and no NI. And where would the government get the money to run the country?! Where would the money be to pay our pensions and child benefit? Just to give a coupld of examples ...

From a high rate of VAT biwi. Hmrc costs absolutely grillions to administer, it is archaic and inefficient.

I would prefer a flat rate of income tax and no other taxes at all. The administration costs are too high to sustain as are the state employment of 52% of the population. It's all about the math!

on the VAT presumably

But VAT is a disproportionate tax, and it is unfair on people who earn less - therefore you're also pandering to the wealthy this way.

And you still need people to run the VAT system!

But HMRC doesn't just do NI and income tax...it also deals with customs, smuggling and something else...oh what was it...Oh yes, VAT.

It is unfair to the poorest sections of society but the rich are the biggest consumers of goods and services anyway. As long as food, energy, housing are exempt everything else would be included it could reduce housing costs at the lower end because supply would be greater once the shackles of stamp duty had been removed from the more expensive properties.

It is relatively cheap to administer because it is collected from businesses rather than individuals.

A flat rate would be my first choice but a high vat rate would be my second best.

BIWI I think the idea is to think about different ways of collecting tax.

Yes, VAT is cheaper to collect than income tax - But given that VAT is not considered a redistributive tax, I can't see much support for it replacing income tax.

However, I did read an IFS report which argued that the lower a persons income the less VAT (as a proportion of spending) paid, because more spending was on VAT exempt goods (e.g food)!

Alouiseg - x-posted.

"as are the state employment of 52% of the population"

Where did that come from, please, Alouiseg - I can quite understand there are a lot of government employees one way and another, but are there really statistics suggesting 52% of working people are funded from local/ central government?

There has been some interesting debate, particularly the idea of flat tax. I have never really understood it but would be in favour of any system which was more fair and simple[would cost less to administer].
There has, however, been very little said about my original question about the avoidance of inheritance tax by the very rich. Their ability to do it because they are rich enough to set up costly and complicated trust funds. Is this because people are quite happy with this situation or because they think it would be impossible to do anything about it. I can't understand why something which seems to me to be so unfair, is allowed to continue without any protest. Maybe I am totally misunderstanding the whole subject.

I alawys thought tax on tips is unfair, the customer tips you has already paid tax on that moeny that has been earned, then tipping a waitress/er or barman/wom is then taxed again, so effectivily taxed at 22% twice

I also think it is unfair national insurance is stopped at around 40k the rate stayes the same, a person earning under 10k will pay double the NI than the PAYE, hardly fair.

Ninna - I wonder if there is a 'break down' of inheritance amounts paid?

I found some numbers which suggest total inheritance tax per year is about £3bn and that is paid on the estates of approx 17,000 individuals (average - £175k each??)

I would hope that the majority of the £3bn comes from a few paying significantly more than £175k.

Does anyone have better figures than mine?

This is another example of how taxes only seem to be paid by the little people. Really pisses me off. I don't object to people earning of even inheriting mega bucks but weaseling out of paying into the system is just out of order. Morally wrong IMO.

However the Uk has a very fixed attitude on inheritance tax. People regard it as their right to pass on their house to their kids and that to have sell it to pay for elderly care is bitterly unfair which in a way it is. However as we all know the state can't afford to pay.

Do people have a "right" to accumulate property wealth then expect the state to pick up the care home tab? It's an interesting one.

I am strongly in favour of £10k tax free allowance for adults and £5k for children that is feely transferable within a family unit and then 50% income tax above that rate.

I would prefer to see capital gains and inheritance tax removed but houses subject to capital gains tax just like every other asset. The fact that people can live in a house and earn huge untaxed capital gains is wrong. It distorts the economy and makes property speculation far more attractive than investing in and developing real businesses.

TBH inheritance tax on death of an old person only really rectifies the fact that that person has made huge untaxed property gains by owning property during their life.

Me and DW have family trusts and legitimately would not pay inheritance tax. We did it because DW was gravely ill and we had very young children. In that case it does seem grossly unfair in cases where both relativley young parents are killed in a car crash or illness but children survive for the Govt to then come along and take a chunk of the money left by parents when those children will need to be looked after by elderly relatives who may themselves only have a small pension.

The issue of paying for care of the elderly is a very complex one. I do think old people should use their assets to pay for it though. Problem is that people who do not make provision get care for free - which those that have saved feel is very unfair.

webdude That stat comes from my dh. He does exciting (yawn) stuff with stats and charts and i trust him more than a Quango with a press release and an agenda.

Take it or leave it.

I'd have to leave it then Alouise, on the basis that I cannot see the numbers involved going from the 1 million (?) working in the NHS to around 12 million (a guess - 60+ million population, maybe 24 million working, so 50% would be 12 million, IYSWIM) involved with other local authority and other civil service jobs. I suppose I could trawl through the NAO figures as those might show numbers employed in round figures for Schools, Police, local councils, government departments, and so on. But 12 million ?