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?

Wrong, minipie. You assume that on death it by right should go to the state instead of remaining with the family.
That the family is somehow privileged, or lucky, that it is fate or good fortune or undeserved.

What an incentive to save! What an incentive to prepare for the future! I don't think. It's an incentive to spend all your money and rely on the state.

The whole point is if you save money and leave it as an inheritance that you have worked hard to get, YOU HAVE ALREADY PAID TAX on it so why do you need to pay again. Inheritance tax is so very unfair on so many people that when my GF died my father and GM ended up with nowhere to live. How is that fair, having to sell everthing to pay death duties and inheritance tax? Daft, especially as they were what you would consider to be quite well off at the time......

I think trustfunds are a great idea to stop the govt taking shed loads of money from your loved ones, I also don't believe you have to be incredibly rich either to have one and considering setting one up for my dc in the future with any assets I may have (if I have any......)
By taking everything in inheritance tax I think it would be detrimental to the country in the future. Think of entrepreneurs such as Richard Branson, what would be the incentive to better yourself and your family all for it to be taken away at the end of each generation to start over again. The state will end up paying for everyone and no one will be contributing to it, or the hyper rich would move out of the uk, meaning their money would NOT be spent here, taxed in anyway or bringing anything into the country.

This is already happening to some extent and tthe more unfair it becomes the less likely the rich will be to invest in this country and therefore do anything for this country in the long term.

85% Inheritance tax is ludicrous, there are sso many cutbacks that could occur prior to going down this road and screwing over any future this country has of getting out of the recession and building on its funds again.

Expat Non Dom's pay an estimated £4bn in UK tax (and contibute an estimated £12bn to UK GDP).

Mmrsceptic - It's a question of whether you see money people's parents (let's say) have earned as belonging to them, or belonging to their wider family.

Personally, I think people's money belongs to them alone, not their wider family. It is their right to spend it all on themselves.

Many people argue, as you do, that higher inheritance tax will result in people spending all their money and relying on the state. I doubt it. State provision for the elderly is sufficiently pathetic that those who do have money are likely to be careful to make it last.

ok minipie - just wanted to give you an example that I had heard the other day.

A couple save for the entire of their lifetime, going without fancy holidays, new cars and luxuries even though they could afford it because they were saving for a rainy day.

The husband got ill, very quickly and because they had above the threshold in savings (over the entire of their married life and career) they weren't entitled to any free care when he became ill with Alzheimers, fast forward three years the wife is on her own, has NO income whatsoever, no home and now has to be looked after by the state and she could well have a couple of decades in front of her. She also no longer has the love of her life and they had planned to spend that money together in their retirement years. How is that fair? These people have both worked hard, saved money and paid large amounts of tax to pay for everyone else but there was nothing for him and her when they really needed it.

minipie - Ok - you might wan't that but it isn't 'fairer' is it? It's a way of getting people to focus on increasing income instead of inheritance.

Very unfair on someone unable to earn a large salary due to a disability of some sort who inherits a large amount of money for instance.

See my post at 00:17:45.

Doodleydoo - You haven't paid tax on it twice. You paid tax on it, then your descendants pay tax on it when it is their income.

Doodleydoo - Your example is about how to provide care for the elderly rather than tax though isn't it?

Doodleydoo - your example is very sad but I don't really understand how it is to do with inheritance tax?

oojimaflip - yes, I suppose a higher inheritance tax/lower income tax system would be hard on someone who cannot earn but has inherited lots. But I can't see any reason why someone who can't earn but has rich parents should have a better lifestyle than someone who can't earn and has poor parents. (in general, I think that state provision for those who genuinely cannot earn should be increased - perhaps using the money brought in by increased inheritance tax...)

you say "it's a way of getting people to focus on increasing income instead of inheritance". Yes, that's true. But that is fairer, because people do at least have some influence over how much they earn. People have no influence over how much they inherit.

Minipie - I don't see that fairness is a useful or laudable aim. If you want to make the tax system 'fair' you will inevitable be distorting peoples behaviour. The effects of this may be even more unfair. Better to be honest about what effects you are trying to create. If you WANT to see people spending rather than saving as they approach the later stages of their lives then increase inheritance tax. If you want them to enrich their descendants reduce it.

This decision should be based on how the outcomes of each of those choices effects wider society (so which is 'fairer' I suppose) - not on a perceived fairness around how much money each of us gives the state.

My last post was expanding on an example mentioned in an earlier post so my apologies.

Another example would be below (this one is fictional so it may not be totally totally accurate but will put the figures in the ball park)

My DH earns £100,000 p/a (sadly not the case but for examples sake and my baby brain)

On that he pays 40% on anything above £37,400 and 20% on anything below so total annual salary post tax = £67480 being taxed £32,530 p/a

Of which we save £50k p/a so over 10yrs have 500K (excluding interest etc for examples sake)

My DH and I die leaving this for the care of our dd, she then pays £70K in tax on this leaving her 430K - great loads of money but the mere fact is over 10 years the amount of tax paid on this sum is £395,200. Now sounds great but that doesn't take into account that this CAN include your property (if you live in the south, you would be over tthe threshold already.....so are likely to have to see as highly unlikely to have a mortgage free home)

I am afraid I do think that is unfair, it is taxed twice and if this is over a 10 year period the only person getting a windfall is the govt as if property is involved none of this is going to be cash in hand, in addition there will be tax implications too if the property is sold so you are being taxed on being taxed on being taxed. So no it won't matter a jot to me but if I leave a 2 year old with nothing AND no family then I think that the govt would be massively unfair to her.

So what if it is taxed twice and so what if you think it is fair? What are the RESULTS of these things in terms of peoples behaviour?

'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.'

I really don't get this point of view. If you have worked and got your qualifications, got a job etc, why is it 'unfair' if you spend your income on your children?

If you don't let a child inherit because of their parent's income when they were alive, then you take away all incentive to build businesses; amass savings; not be reliant on the state for help; as if I can't leave it to ds, I am so not leaving it to the government.

oojimaflip - Sorry I don't understand your second part as in What are the RESULTS of these things in terms of peoples behaviour?

Do you mean how would this taxation reflect on how I behaved with my spending or my voting or what - am not trying to be difficult but just trying to understand you second question.

On the first part, as someone who contributes to society through my taxation I don't feel it is fair that it is taxed twice, and yes what I think is fair does matter thank you very much, just as it matters to you!

Scary - I totally agree with you.

Perhaps the fairest thing of all would be to increase the tax threshold from £325,000 which is less than a 1 bed flat in parts of London (and it is the few and far between that have no mortgage!), this means that those who are in the percieved richer areas would benefit from not losing both their home and their loved one in one fail swoop, and those in the poorer areas but with more capital would also benefit. This would then mean that anything above the increased threshold could still be fairly taxed without it impacting on people at a time of grief.

Not everyonne who is super rich inherited loads of money from their ancient ancestors, and many of those who are still loaded have actually worked to keep their money growing and contributed to those who haven't had those opportunities, but there would be far fewer of those if inheritance took it all away from them to start off with.

Doodleydoo - Well not voting so much as your spending. I doubt you actually care that much it's taxed twice - it's the total level of taxation that bothers you. If inheritance tax was 0.1% would you be that bothered?

What are the results of different levels of inheritance tax on peoples behavior (saving versus spending etc), how does this affect wider society, does this contribute to the kind of society we want to live in? These are more appropriate questions than if it is 'fair' in the very limited terms that taxation is discussed in.

You are right, it might be that its the level that it is taxed at that pisses me off and that if you want to try and own your own home and save up for your future i.e you don't believe there will be much of a state pension scheme in the future, then you die and forfeit your state pension plus any of the benefits that you have accumulated by saving that money by it all going to the govt.

From my own pov, I was brought up with a "rainy day" mentality as was my dh. If I wanted something I saved up to buy it, rather than some recent mentality of "right now" where you can't afford it but have it anyway and get yourself into financial strife. I have always felt more comfortable with a small financial cushion behind me just in case, since having dc that cushions has become more of a whoopee cushion than the beanbag I had in my single days. But for example we had to replace our boiler, we were in a position that it stung rather than needing pain killers iyswim.

I understand the need for spending whilst our economy is down, but there is also a need for saving. Where does everyone think the money gets their money to lend people. If I have £10,000 in the bank it is earning interest because they are lending it to someone else at the same time who will be paying double the interest on the loan than I get on the savings. It is never really "there".

I really wish I could change this mentality but actually I don't think it would help the economy at large in the long term. Besides I want to try and have the ability that if we really need to send one of our dc to a private school(for some reason I don't know but having that option would be nice!)or if we needed some medical treatment for one of them that wasn't totally provided by the nhs then having a small cushion would be great to go someway to being able to afford it.

That is the kind of person that I am, that my dh is and that I hope to bring up my dd as. I am that person who will be screwed over in the future should anything go wrong. Meh. Oh Piss.

Does that get my position slightly more across, I am not against paying IHT but I do think it should be fairer, OK the dead don't vote but their inheritees do. Just out of curiosity if I left the bulk of my estate to a charitable concern would that get charged IHT too?

The people who should be taxed more are Footballers imho, all they seem to do is not win the world cup so far for a very long time, get paid lots of money to shag inappropriate women who then sell their stories and manage to get out of paying lots of income tax. That is not fair, I am afraid I am not a footie fan and don't really see it as a talent but an over paid sport! Some of those guys could significantly lower the national debt!

Ok, oojimaflip I agree that it would be better to talk about effects on wider society, rather than fairness (not least since fairness is such a subjective concept). The results of increasing inheritance tax and reducing income tax would be (hopefully) to encourage people to seek to earn more (as they'd get to keep more of it), and to encourage older people to spend money on themselves and not save it for the next generation. It would also reduce the gap between richest and poorest (since many of the richest have got there through inherited wealth, one way or another). Personally I agree with those aims.

Doodleydoo - I think I would allow a partial exemption from/ deferral of inheritance tax where parents die while their kids are young. A 2 year old is obviously not in a position to support themselves/move out of the family home/etc. (The current system would probably require the 2 year old to sell the house though.)

scaryteacher I don't think most people build up businesses and savings for the sake of their kids' inheritance after they are dead. They do it for themselves and so they can benefit their children while they are still alive.

I'm saving so that is anything happens to us whilst ds is still a minor, there is enough money to fund GCSEs, sixth form and uni, without him (or my family) going into debt to pay for it. I want there to be enough money for that, and to pay off the mortgage on the house, so that he an asset for later and somewhere to live if he needs it.

I also spend money on him now, but you said earlier Mini, that that is not fair.

It's up to us how we spend the money we earn, and if we want to leave it to our kids, then that is our decision, not anyone else's. It may be the only way they get a pension!

There are definitely different ways of looking at this, as actually the people that this most effects are the ones in the middle like you and I, those who have 20 mill in the bank are going to be pissed off that they have to get rid of 40% but is it really going to impact on their lives? whereas the everyday person who has death in service and life insurance and accumulates a house plus say £500000 (quite possible!) is not actually going to be rich for very long. They would lose 40% of that above and beyond the threshold, and if you live for a decade after that but have no income and are past your working years you will have a nice life but if you use some to pay off your mortgage and then expect to live on the remainder it probably won't last as long as everyone thinks.

Perhaps it would be fairer to NOT take the owned home into account. If you owned more than one home then this would be moot and could be taxable but if you own a home that should be wiped out as far as inheritance tax is concerned and perhaps cash etc should be looked at solely. I don't know, there prob is no really good solution but it is the loss of home after losing a loved one that irks me. Also we have concentrated on our children but inheritance does also go to the partner/wife etc and although more tax breaks here if you have both been saving then it is still a little unfair! (If DH paid for everything and my salary was saved and I die then he would I assume be taxed on it).

Perhaps some decent politicians (haha) will come up with some interesting view points?

doodley.. you inherit everything up to 346000 or 324 (can't remember) without tax

then if you die his tax allowance is passed to you

so you can pass on 648000 (ish) without yax

Oh OK, that is a bit better then!

Doodleydoo wrote:
If I have £10,000 in the bank it is earning interest because they are lending it to someone else at the same time who will be paying double the interest on the loan than I get on the savings. It is never really "there".

I don't know which banks others are using, but when I looked on the HSBC website earlier, the rates of interest were often below 0.25% gross.

With credit cards running from around 11% to 30%, mortgages at various rates (sorry, out of touch and many options/ considerations) and loans being charged at a lot more than 1% (HSBC would charge me 19.90% for any debt on my account) your "double the interest" is quite likely to be closer to 50 or 100 times the interest they are paying.

Perhaps I'm wrong, or HSBC is the worst for interest at the moment (I have not looked at MoneyFacts for a long time) but while I agree with your sentiment, I suspect it is very much worse than you imagine.

About HSBC paying under 0.25%...

There were a couple of exceptions, one for the HSBC Passport account (not open to UK citizens, but people arriving from overseas) paying up to 4% on a regular savings account (starts at 0 pounds, maximum credit of 250 per month, at end of year, whole lot is swept into some other account, so you'd get 4% on half of the amount you paid in).

The second exception was paying 8% on the sum, with identical limits. However, to be eligible you'd need to have one of some specific accounts, either (a) savings of 50K and monthly salary paid into the HSBC, (b) 100K and some other product such as insurance, or (c) 100K and mortgage minimum 300K. So pretty high figures for you to be able to get 8% on a maximum of 1500 quid.

Whooopeee-do... somehow I don't think I'd want to bother with meeting HSBC's criteria for the dubious privilege of opening one of these "savings" accounts, just to get 120 quid interest (gross), when I'd have to have 50K to 100K with them, to start with, and they might be charging someone else 20% interest when loaning out my savings, yet giving me 4% on not the 50K/100K but 3K

"yet giving me 4% on not the 50K/100K but 3K "

Yes, I know it is 8% interest, but as you have only half the final sum in the account on average, it is 8% on 1,500 or 4% on 3,000 IYSWIM.

echo crappy HSBC savings rates

Totally with the crappy savings rate, but I do feel the need to save and am hoping that once out of this blip my savings will revert to a better rate of interest but I do see your point with regards to the savings accounts that are available to those of us who want to save. Unfortunately it seems we are being penalised yet again for doing no wrong. It does really piss me off though as I have not got myself into serious debt (mortgage excluded) by being frivalous, I have done my best to have a financial cushion should we require it, I have taken no benefits from the state apart from Child Benefit and the Child Trust Fund - am about to take the health in pregnancy grant but am currently failing to see why I shouldn't as I will put this to good use for things for my new baby - and yet apart from these I am penalised by losing out on interest whilst the banks make more money. But that is all slightly off topic and more my rant! apologies