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?

No reason for considering it brings down the tone - perfectly valid concern and argument.

It is probably totally specious but I suppose one might see people being in favour of people having / earning more than themselves being the ones who are "getting away with it" and should be taxed.

I am definitely not in favour of inheritance tax.

I'm not a big fan of this sodding country taxing us on everything either!

IPT Insurance Premium Tax...........so you are sensible and plan for certain eventualities then you pay a percentage in tax!!! For what???? Fireman to go on "diversity" courses!!! It's true.....and a waste of money, OUR money!

Capital Gains tax......for having the balls to take a risk in business or on an investment. For what?? To pay the salaries of the made up jobs section in the Guardian.

Yes well anybody who scrimps and saves, who prepares for a rainy day, is penalised. I hate that. I really, really hate that.

Tax would be much more palatable if it was less obfuscated and complicated. I think a flat tax is the right starting point, but not the end point.

Start off with a flat tax on ALL income (Capital Gains, Inheritance, Pension EVERYTHING) - work out the level on how much money the state needs. No other Tax of any sort.

Then make your arguments for using it to incentivise behaviours or outcomes you want.

Want to tax cigarettes? Say what change you want to see as a result and how you are going to measure it.

Think that a tax break on Capital Gains will help the economy by encouraging people to start businesses? Say how you are going to measure it and what you are going to do if it doesn't work.

Think a progressive tax system will reduce the burden on the less wealthy members of society? Say how you are going top measure it.

flyingcloud - I don't think it is unreasonable to exploit a system for your best advantage while at the same time saying the system should be changed to prevent you from doing so. You have to work within the framework that exists at the time.

A flat tax? You mean like the poll tax?

The easiest way to avoid IHT is to spend it so you are below the limit for IHT when you pop off.

I hope to leave something to my ds, but I won't be going without heating or living on baked beans to achieve that.

I don't think that the statement that only the rich can avoid IHT is true either. Everyone can as has been pointed out avoid it by tax planning; the info is there on how to do it, and a solicitor can do it for you at very little cost.

You also have to consider how IHT works. AFAIK, you have to pay the IHT before you get probate, but you can't sell the property until probate is granted, so it is a vicious cycle.

Yes, the government benefits from IHT, but so would the general economy if it was scrapped, or the exemption levels raised, as a capital sum might take people off benefits; give them more to put into the economy etc.

I also don't agree that not working means one is economically inactive. I work at times, (SAHM the rest) but don't earn enough to pay tax, but as a family we are economically active. One has to spend money to eat, drive, clothe oneself, buy books etc. That surely counts as economic activity in that money is being spent within the wider economy?

mmrsceptic - no the poll tax was a fixed amount , a flat tax is usually used to mean a fixed percentage.

I wish the name Community Charge had stuck though, just because of the Monopoly connection ;)

Ninna - trusts have many many non-tax reasons behind their use. It enables a giver to give to a person who may not be able to manage the money sensibly.

For example, you may wish to give money to a relative, but be reluctant to, because they are too young, too old, have a mental illness, have an abusive partner, or are spendthrift and wish to be protected.

A trust allows you to do this, because the trustees and not the beneficiary have control of the money, but it has to be used for the beneficiary.

Since 2006, anyone putting money into a trust in excess of the nil rate band for IHT (or cumulatively in excess looking at the past 7 years) has to pay a 20% tax up front. In addition the trust pays tax every 10 years.

Contrast this with an outright gift to an individual, where if the giver lives 7 years there is not tax to pay.

Therefore trusts do not automatically reduce inheritance tax.

The rich can reduce the amount of money they die with, because they have plenty of liquid assets to give away. Trusts are really a red herring in terms of IHT saving - they possibly make a person more likely to give away something because they know it will be spent 'properly', but they are a very useful way of, for example, allowing someone with two children, one of whom may be mentally ill/have a controlling partner, and the other not, to give to both of them equally.

Do you have a particular scenario that you are concerned about? I really wouldn't believe all you hear on the radio about inheritance tax.

Incidentally, I think the estate of the late Princess of Wales paid an humungous amount of IHT, so your argument OP isn't accurate.

Thankyou cleanandclothed and everyone else for informative feedback. It is a subject i have wondered about for a long time, for no more reason than the fact i am in favour of fairness for all.
I have learned some detail about setting up trusts. Someone said it is costly and fraught with problems. Someone else, implied that it is perfectly possible for everyone to do. I do wonder how realistic it would be, for ordinary people whose inheritance is mostly comprised of a house.
I totally agree that there should be special cases as far as inheritance tax is concerned. Cases where there is a farm, a shop etc which is the livlihood of the next generation, should have special treatment.
To sum up though. Do the very rich pay inheritance tax? Do they not tend to ring fence their money in trusts. Is the system fair because anyone can theoretically set up trusts also? If so why isn't there more information on the subject. If everyone can avoid inheritance tax by means of trusts, then what is the point of having it at all. Surely, it isn't a source of money for the government paid only by those not savvy enough to avoid it.

The really rich usually don't pay any taxes at all.

Google 'non dom' or Zac Goldsmith.

Duh.

I think IHT is the most unfair of all the taxes we pay.

You get taxed on your earnings.
You get taxed on your spending.
You get taxed when you buy a property.
You get taxed when you sell a property.
Which you buy with money you have already been taxed on.

Then when you die your family have to pay tax for the privalige of you dying.

How does that make sence in anyones head????

Also the rich have to pay the same as the poor except they are in a better position to know the rules and the backdoors and they utilise that knowledge very carefully.
That is probably why they are rich in the first place!

Oh and very good accountants who read those massive books on tax laws.

Ninna

The estate of anyone (UK domiciled) who owns assets when they die over the IHT threshhold will pay inheritance tax unless the deceased left it all to their spouse or another exempt beneficiary (such as a charity).

If they have given assets to a trust so that they only own assets below the IHT threshold, then they are no longer a 'very rich person' because they have given the assets away. They could similarly have given the assets to someone outright (ie not in trust).

If someone creates a trust in their will, the estate still pays IHT before the money goes into a trust.

As you say, it is difficult for someone whose main asset is a house to reduce their estate, because they still want to live in the house. This applies to the rich as well as to the middle incomed.

Scaryteacher said "I think the estate of the late Princess of Wales paid an humungous amount of IHT"

Which makes my point that the tax tends to be paid by the young and the ill prepared, rather than the older person who plans for their death.

It's a tax on your belief in your own immortality!

I think IHT is the fairest of all the taxes we pay.

We only pay it on money we didn't earn ourselves. Inheritance is a windfall.

I would much much rather pay higher inheritance tax and lower income tax.

I was surprised at how much IHT her estate paid, given that she was in the position to command the best advice.

I think Princess Margaret's children paid a lot as well. Have doubts about the QM though - she was overdrawn to the hilt, so nothing to pay it on?

how do you work that out, minipie?

we've saved and saved on money earned and taxed

if we were to die tomorrow IHT would be due on that

so..basically you're wrong

'i am in favour of fairness for all' where have I heard this strap line recently?

Minipie, can I ask if you agree that people should sell their property to pay for care homes/nursing care?

Too sunny for an argument but I am always interested in why people have such opposite opinions about IHT.
Is it an ideological stance or a political one or just an instinct for fairness?

Funny old world we live in.

"I think IHT is the fairest of all the taxes we pay."

Yes, work hard all you life, save and then the Govt will spunk the lot for you on something that you probably won't agree with.

mmrssceptic

It will not be you who pays IHT. It will be your heirs. They did not earn the money, nor did they pay tax on it.

Alouiseg

Why should I have any rights over what my money is spent on after I'm dead? I'll be dead.

ronshar

it's an instinct for fairness. it is already unfair that some kids get brought up with loads of money, others don't. that is compounded by letting the richer kids inherit.

Do I think homeowners should have to sell their property to pay for care? No, not if non-homeowners get care for free from the govt. But if they don't sell, their heirs should be taxed highly on the value of their home when they die. The effect would be to encourage elderly homeowners to sell their home (perhaps by sale and leaseback if they want to stay there) and spend the proceeds on themselves - perhaps on buying a better standard of care than what is given for free.

I don't see what fairness has to do with taxation. A 'fair' taxation system would be a flat percentage on all income of any sort.

Once you move away from that what you are doing is encouraging/discouraging particular behaviours - which is not 'fair' but may be right.

"A 'fair' taxation system would be a flat percentage on all income of any sort."

I agree, except that I think it would be fairer to pay a higher flat rate on income you haven't worked for (ie inheritance) than on income you have worked for. eg, I'd much rather pay 15% income tax and 85% inheritance tax, than 50% on both.