Quick question - inheritance tax...

[JacquesMesrine]

TwigtheWonderkid said:

HotJambalaya said:

There really is some extraordinary socialism and would be attempts at social engineering in this thread, the amount of people who are espousing ways to detract from and then spend other people's wealth is really incredible.

Whichever way you try and cut it, supporters of IHT are unfortunately at best uneducated, and at worst full on flag wavers of the politics of envy. So my old aunt, who bought her house for £18000 back in the day has the good fortune to have it valued now at almost £2m, wants to leave it to her son his wife and 2 kids that are currently living in a 2 bedroom flat. She can't, and the family home has to be sold to pay the tax. Thats OK for you because 'she didn't earn it'?

Given that the UK earned about £2.9bn in IHT in 2013, and spent about £11.8bn on foreign aid, I have a pretty good idea about how to make up for the shortfall of treasury receipts on it. Christ, George Osborne has pledged £1bn to help fight malaria, how many cases of malaria have we had here?!

Pretty much every decent economist believes that the negatives of IHT far outweigh the positives, all this pathetic winging about house price inflation is utter nonsense, 14,600 odd people's estate came under IHT in 2013, are you saying that 14,600 people were enough to single handedly cause all the house price inflation in the country? Idiotic! On top of that, you have the super wealthy (hint, you want them in the country) leaving, and taking their spending power and wealth with them. They could be here every day, spending spending spending, but at MOST they'll only want to spend 179 days a year here now. Oh, and they don't cause house price inflation either, because believe me, they aren't shopping in the same house price category as you.

Australia got rid of IHT in the late 1970's and it seems to be doing pretty damn well for itself.

So let me get my head around the sad tale of your aunt and cousin.

She will leave her son a £2m house and probably son savings. He will have to sell the house to pay IHT, about £540K at a rough estimate. Less if she hangs on another couple of years. Leaving him a measly £1.46m to buy a house for his family. Ahhh, the poor love. Can you set up a link to his "justgiving" page and I'll make a donation to help him in his tragic plight.

FFS! The lack of real life awareness in some in these posts is staggering.

Good point. I'm also unhappy at the idea that her son has chosen to have two children when he can only afford a two bedroom house. I bet he claims Family Credit. I find that benefit and all benefits repugnant

[Burwood]

Craigyp79 said:

I keep coming back to thinking about Bill Gates and the example he sets.

The worst thing you can give your kids is a whacking great lump of cash and a sense of entitlement.

Honestly, do you really believe they will get nothing. You see in a Bills mind 50m is nothing

[JacquesMesrine]

Burwood said:

Craigyp79 said:

I keep coming back to thinking about Bill Gates and the example he sets.

The worst thing you can give your kids is a whacking great lump of cash and a sense of entitlement.

Honestly, do you really believe they will get nothing. You see in a Bills mind 50m is nothing

Maybe, but it isn't £50billion

[mph1977]

Burwood said:

Hey Devil, the truth is this country is insolvent and I make massive contributions. Given what I have contributed seems to have irritated you to the point of personal attack I'll leave you to it chum

AH classic PH ' i'm a powerfully built net contributor' therefore what i say counts more even if it;s total bullock emissions

[JacquesMesrine]

mph1977 said:

Burwood said:

Hey Devil, the truth is this country is insolvent and I make massive contributions. Given what I have contributed seems to have irritated you to the point of personal attack I'll leave you to it chum

AH classic PH ' i'm a powerfully built net contributor' therefore what i say counts more even if it;s total bullock emissions

I wonder how much of the £630billion tax revenue, he actually contributes personally. I'd expect a "massive contribution" to be at lest 15% of the full total

[QuickQuack]

REALIST123 said:

mph1977 said:

QuickQuack said:

Sorry old chap, but alas no, that is not a fact. A large proportion, yes. But not majority, let alone vast majority. ONS and HMRC publish the data on number estates paying IHT on a regional basis. Approximately 42% of estates subject to IHT are in London and South East. The data is available here, table 12.10b:

https://www.gov.uk/government/uploads/system/uploa...

Granted, 42% is a large proportion but it's well under half so not a majority, let alone "vast majority."

Anyway, it's too late to argue and I've had a glass of wine. Care to join?

and what;s the population of London and the South east ? 15 million ? ( oft quoted figure of around 8 -9 million in 'greater london )

so 20ish percent of the population pay 40+ % of IHT ....

Maths not your strong suit? 42% of estates subject to IHT being in London and the south east does not give any indication of the %age of IHT paid by those estates, let alone the overall population....

Indeed maths isn't the strong point in there, but the real figures are even more interesting. The figures re IHT are all in the government document linked above.
The latest figures for population put the UK at approx 64m and London plus SE at approx. 19m so that's about 30% of the population.
That 30% of the population produce 42% of all estates which are subject to IHT.
That 30% of the population, which own the 42% of estates subject to IHT, also generate 50% of the total IHT receipts.

The above 2 points have two separate implications; the first is obvious in that a larger proportion of estates in London and SE pay IHT than in the rest of the country. The second implication is that an estate which is subject to IHT in London and SE is larger and pays more in IHT an an estate subject to IHT in the rest of the country. House price inflation completely out of keeping with the rest of the country is a significant contributor to those observations, if not the prime contributor.

TwigtheWonderkid said:

And as for your assertion that tax has already been paid on it, we've already established that in many cases, with house price inflation, that isn't true.

I'm really glad that you've changed it to many, because many is a very appropriate term. However, with the majority (58%) of estates subject to IHT being outside the London & SE property bubble, in those majority of estates, house price inflation has not played a huge part. As I mentioned before, I live far enough north of M25 not to be in any kind of a bubble and, indeed live in an area which has had the lowest house price increase in the last 10 years, just 14%. I have been asked about the size of my estate etc. and I'm not willing to divulge that. Suffice to say that if my wife and I were to die tomorrow morning, the family home alone would be well over our joint tax-free allowance, and that would make it a minority of the total estate with very little, if any, of its value coming from house price inflation. As an aside, none of the estate would be from any inheritance from any of our parents. For all intents and purposes, the whole of our estate has been earned through work.

As I mentioned before, there are 3 children and they would be very lucky that not only would they be inheriting such a large estate, they also wouldn't need to sell the family home to pay the IHT due. My biggest objection to punitive IHT is precisely that, the family home. I do think that the family home, whatever the value should be excluded. Many people do have significant emotional attachment to their home, and particularly to the one where they were born and grew up in. Not just that, but with huge university fees, student loans etc., a lot of younger people are continuing to live with their parents well into their 30s. I can easily foresee ours staying with us for that long, and even maybe a few years after they get married and settle down, the place is big enough. I don't think this trend will reverse anytime soon either so if the children, at whatever age, are still living with their parents, loss of the family home would be an even bigger deal.

TwigtheWonderkid said:

Whilst I have no issue with IHT, there are some subtle changes that would make sense.
1. Orphaned children under 18 should be exempt.
2. The threshold should be lowered, but the individual recipient taxed, not the estate.

So, at present, a £650K estate left to one person is tax free. They get the whole £650K. But 2 people sharing £700K won't get £350K each, as 40% tax on the excess £50K will apply. So the estate will pay £20K tax, leaving £680K or £340K each. Each person lost £10K in tax on £350K, but someone else gets £650K with no tax. That's mental.

I'd make the limit £250K tax free. That's a nice sum to receive. Each person in the will can get £250K tax free. Leave £2.5m to 10 people in equal measures and no tax is payable. Leave £300K to one person and they pay £20K tax (40% of the excess £50K).

Now, actually, I don't think that's a bad start, and I also fully agree that it would be much fairer to tax the beneficiary and not the estate, precisely for the same reasons as you have set out. The current arrangements are archaic and bonkers. All I would add to your suggestions would be to make the main family home (and the main family home alone, not the second homes etc.) exempt as well but only as long as it has been left to one's direct descendants. I would prefer to increase the individual limit a bit more but one could negotiate and agree on a compromise.

Having come to this argument from pretty much the opposite ends, I think that's a reasonable mid-way.

As an aside, IHT generates around £3bn per year. There are still a huge number of loopholes for large corporations (both national and multinational) to exploit where a bit of paper shuffling can turn a multi-million (or even multi-billion for the larger ones) profit into minimal profit or even a loss, which then generates tax rebates! Closing those would more than compensate for IHT, I certainly wouldn't want the government to cut spending on malaria or refugees to give me a tax break. However grumpy I get and however much I rant on about tax, I'm fully aware that I'm neither running away from bombs and armed lunatics, nor watching a quarter of all children around me die from an infectious disease.

Edited to correct several typos and my boxed quote errors which took me a few edits.

Edited by QuickQuack on Thursday 4th February 23:42

[ATG]

Burwood said:

Because it is the most basic human instinct . A private home, no matters it's worth should never attract taxation and there are no guarantees in life what age my kids will be.

It isn't "the most basic human instinct" as it demonstrably ain't shared by a bunch of the humans posting on this thread.

[JacquesMesrine]

The problem with the family home being tax free and taxing beneficiaries is that I can find multiple loopholes without even trying.

Family home? Too subjective, I'm guessing it would be the main home. What if parents are divorced? Do they get both family homes tax free? Get divorced cash everything in and buy two homes could be a simple solution. Maybe just cash everything gin and buy one fk off mahoosive home and keep just enough cash to be under the remaining threshold.

Beneficiaries? Just pay people say 10% of the bequeathed amount to act as stooges for a chunk of the money. I'd offer my services. Water tight contract with the "beneficiary" for me to pay them a fee of 0.9n, where n is the value "inherited" by the stooge. The stooge gets quite a few quid, the beneficiary is still better off and everyone bar the taxman is happy. This could be a nice little earner.

Back to QuickQuack. Your children will inherit a huge amount of money from what you're saying. If you want them to have it all, start gifting it to them now.

[Toltec]

Craigyp79 said:

OP, really it comes down to this doesn't it. You think that you have worked harder than anyone else has you have accumulated lots of money, you equate hard work with making money and can't really see how people with less money than you have worked harder. You begrudge the government taking your money as you think everyone who has no money is a scrounger.

You are wrong.

Life is roughly (And I am generalising)

Some people work hard and have lots of money.
Some people don't work hard and lots of money.
Some people work hard and don't have lots of money.
Some people don't work hard and don't have lots of money.

There are of course people that fall between these categories

Whilst there is an argument that IHT could be taxed at a more progressive rate and should be looked at, I'm not sure you would like the outcome of what the majority of voters in the UK would like it set at.

And yes, what do you care, you will not be around to feel bitter about. As the old saying goes, you can't take it with you.....

The options you have missed are the ones where some people chose to live frugally and invest for their and their families future as opposed to those that piss their money away and borrow up to the limit. There is a balance of course that does not involve either living on turnips or having the bailiffs around if you are out of work for a month.

One of the things that feel wrong about IHT is that it taxes the value of property, whether that is a house* your parents built on a shoestring and just happens to be worth quite a bit now because of where it is or it is your mother's engagement ring that would cost several thousand pounds now, but which you have no intention of ever selling. If the estate is rich in physical assets, however the monetary assets are modest then the necessity selling physical assets to meet taxes is not a nice position to be in.

This is not the position we are in, that is not the basis of my argument, I can sympathise with people that have to make difficult decisions after a loss though.

* Houses in the South East are often worth much less than the land they occupy, just compare the insurance rebuild cost against what they would cost to buy. Houses are tricky in that unless you move to an area where the land is much cheaper then in an earlier example where a £2m pound house leaves £1.46m after tax that would not necessarily be enough to buy a house.

There was also an earlier comment that children in their late thirties, early forties should not need a large inheritance as it is too late to help them set up a home. What is does do however is give the grandchildren a start, it may also allow the children to consider early retirement thus releasing jobs for the younger generation.

It is difficult to come with anything that seems fair, my personal standpoint is that you should not be punished/taxed for being careful with your finances so that you are not a burden on the state in your old age. If this means you have something to leave to help out future generations attain the same why should you pay more tax than someone who spent everything and expected the state to look after them.

Let's say you have two couples, both have the same income and work in a similar area.

One couple buys a house, buys new cars every couple of years, goes on a few holidays a year, eats out a few times a week and/or gets take out, never pays their credit cards off, always complains they are short of money. They retire on a modest pension, downsize to clear the mortgage and give the a modest nest egg, they keep spending then end up borrowing more. They die and the house has to be sold just to clear the debt. There kids inherit £200K and no IHT is paid.

One couple buys a house, runs older cars which they keep longer, have modest holidays, cook, clean and do DIY etc, pay the mortgage off in their late forties. By the time their kids need to buy a house they can help them out a bit with the deposit. By the time they retire they have enough to continue to live comfortably in their own home. They die and their house is worth enough to clear their kids mortgage and give their four grand kids a good start on the property ladder. Why should they pay tax on the money they leave, they did not earn any more, just chose to build a better future for their family?

Neither case applies directly to me they are just examples, you could get more extreme. You could throw in one lot ending up homes and leaving nothing after living ten years past the point the value of their house ceased to cover the costs while the kids of the others looked after them so they could stay in their own home. There are any number of stories and variations.

The point is both couples had the same opportunities, but one gets penalised for being sensible. Fair enough the ones that spent everything probably paid a lot more tax in the form of VAT so maybe that is the point, government exists to tax you one way or the other. On the other hand the kids and grand kids will probably have a better disposable income as less needs to go servicing debts so the government will get its pound of flesh. They will probably less stressed and therefore healthier and may in the long run consume far less than they contribute to the state.

TL:DR

Why do so many people think that the only way forward is to try to make life equally st for everyone rather than better for at least those that make an effort to improve their lot?

[Toltec]

QuickQuack said:

TwigtheWonderkid said:

Whilst I have no issue with IHT, there are some subtle changes that would make sense.
1. Orphaned children under 18 should be exempt.
2. The threshold should be lowered, but the individual recipient taxed, not the estate.

So, at present, a £650K estate left to one person is tax free. They get the whole £650K. But 2 people sharing £700K won't get £350K each, as 40% tax on the excess £50K will apply. So the estate will pay £20K tax, leaving £680K or £340K each. Each person lost £10K in tax on £350K, but someone else gets £650K with no tax. That's mental.

I'd make the limit £250K tax free. That's a nice sum to receive. Each person in the will can get £250K tax free. Leave £2.5m to 10 people in equal measures and no tax is payable. Leave £300K to one person and they pay £20K tax (40% of the excess £50K).

Now, actually, I don't think that's a bad start, and I also fully agree that it would be much fairer to tax the beneficiary and not the estate, precisely for the same reasons as you have set out. The current arrangements are archaic and bonkers. All I would add to your suggestions would be to make the main family home (and the main family home alone, not the second homes etc.) exempt as well but only as long as it has been left to one's direct descendants. I would prefer to increase the individual limit a bit more but one could negotiate and agree on a compromise.

That sounds like a reasonable idea, you could have amounts for direct descendants, family such as nephews/nieces and their kids, legal family such as in-laws and step kids then finally friends etc. I think there could be some kind of time based provision on the family home, if it is not sold for say seven years when passed on to a child or direct descendant. There should be some kind of recognition for family that provide care for their parents.

The terms for leaving money to charities should also be better, any amount given to charity should increase the total you can give to family by an equivalent amount. It could be a lot more palatable for a large chunk of an estate to go to charities than 'lost' to the government.

[JacquesMesrine]

Toltec said:

The options you have missed are the ones where some people chose to live frugally and invest for their and their families future as opposed to those that piss their money away and borrow up to the limit. There is a balance of course that does not involve either living on turnips or having the bailiffs around if you are out of work for a month.

One of the things that feel wrong about IHT is that it taxes the value of property, whether that is a house* your parents built on a shoestring and just happens to be worth quite a bit now because of where it is or it is your mother's engagement ring that would cost several thousand pounds now, but which you have no intention of ever selling. If the estate is rich in physical assets, however the monetary assets are modest then the necessity selling physical assets to meet taxes is not a nice position to be in.

This is not the position we are in, that is not the basis of my argument, I can sympathise with people that have to make difficult decisions after a loss though.

* Houses in the South East are often worth much less than the land they occupy, just compare the insurance rebuild cost against what they would cost to buy. Houses are tricky in that unless you move to an area where the land is much cheaper then in an earlier example where a £2m pound house leaves £1.46m after tax that would not necessarily be enough to buy a house.

There was also an earlier comment that children in their late thirties, early forties should not need a large inheritance as it is too late to help them set up a home. What is does do however is give the grandchildren a start, it may also allow the children to consider early retirement thus releasing jobs for the younger generation.

It is difficult to come with anything that seems fair, my personal standpoint is that you should not be punished/taxed for being careful with your finances so that you are not a burden on the state in your old age. If this means you have something to leave to help out future generations attain the same why should you pay more tax than someone who spent everything and expected the state to look after them.

Let's say you have two couples, both have the same income and work in a similar area.

One couple buys a house, buys new cars every couple of years, goes on a few holidays a year, eats out a few times a week and/or gets take out, never pays their credit cards off, always complains they are short of money. They retire on a modest pension, downsize to clear the mortgage and give the a modest nest egg, they keep spending then end up borrowing more. They die and the house has to be sold just to clear the debt. There kids inherit £200K and no IHT is paid.

One couple buys a house, runs older cars which they keep longer, have modest holidays, cook, clean and do DIY etc, pay the mortgage off in their late forties. By the time their kids need to buy a house they can help them out a bit with the deposit. By the time they retire they have enough to continue to live comfortably in their own home. They die and their house is worth enough to clear their kids mortgage and give their four grand kids a good start on the property ladder. Why should they pay tax on the money they leave, they did not earn any more, just chose to build a better future for their family?

Neither case applies directly to me they are just examples, you could get more extreme. You could throw in one lot ending up homes and leaving nothing after living ten years past the point the value of their house ceased to cover the costs while the kids of the others looked after them so they could stay in their own home. There are any number of stories and variations.

The point is both couples had the same opportunities, but one gets penalised for being sensible. Fair enough the ones that spent everything probably paid a lot more tax in the form of VAT so maybe that is the point, government exists to tax you one way or the other. On the other hand the kids and grand kids will probably have a better disposable income as less needs to go servicing debts so the government will get its pound of flesh. They will probably less stressed and therefore healthier and may in the long run consume far less than they contribute to the state.

TL:DR

Why do so many people think that the only way forward is to try to make life equally st for everyone rather than better for at least those that make an effort to improve their lot?

You are still spectacularly failing to see the obvious point around the house. If you have a house that your parents bought in the 1970s in London, then they will have done nothing to see that rocket in value. Why should that income be tax free for anyone other than the homeowner?

And £1.46m isn't enough to buy a house? Your mothers engagement ring is worth over £325000 on its own? And I'm picking the very worst case on thresholds there? If it is then I can't see that you're going to be skint.

This thread is heading from the sublime to the ridiculous.

[Burwood]

All threads with contentious topics end in hitter argument. It's the ph way

[Drumroll]

Sorry don't get the OP's problem. He thinks it is unfair that if his parents die their estate will have to pay money to the government before he can get his hands on any money. Please can he explain why that is any different than a lot of families who have a modest asset in a house, which they scrimped and saved to buy and is Well below IT threshold. Who if they have to go into care, then have to use the sale of their house to pay for that care?

[TwigtheWonderkid]

Can I recommend a book to all on this thread. It's for the American market but the principles are same, just replace IRS with HMRC.

A whole section of the book deals with IHT and how the author thinks inherited wealth is bad for the person who leaves it without spending it, bad for the person receiving it in terms of their personal motivation, and bad for the society that allows it. Which is an extreme view and not one I subscribe to fully, but it's a very interesting read.


http://www.amazon.com/Die-Broke-Radical-Four-Part-...

[Craigyp79]

So my opinion is that IHT as a concept isn't unfair.

At present the way it is targeted can seem unfair and I agree that it could be made fairer quite easily.

It could also be made a whole lot more fairer by means testing and administering it on a case by case basis, this would pretty quickly end up costing more than it saves though as government departments don't run on fresh air and goodwill despite what some PH members think.

Also, some people will always want to avoid contributing as much tax as possible as they don't want to pay for the people who don't pay tax.

And lastly, we really are a nation that are transfixed by the value of our property, I include myself in this as a property owner and totally understand the feeling.
But it just feels like at some point it's all going to go tits-up especially in the South East and London, although the plus side of that will a lot less people worrying about IHT....

[RobinOakapple]

HotJambalaya said:

RobinOakapple said:

You may have paid tax on it, but your daughter hasn't. All the money you pay to anybody has already had tax paid on it, when it transfers to someone else they have to pay tax on it too. That's how tax works.

Wow, I wonder on what knowledge basis you are saying that.

I wonder it because just the other day, I was chatting to a tax advisor about this issue, and her point was that in the UK, IHT is taxed on the source, NOT on the beneficiary. So for example, if someone in the cayman islands or some jurisdiction with no IHT died, and left me a wedge of cash I wouldnt be taxed a penny on it. The UK doesn't tax the beneficiary, so taking that into consideration, you are utterly, and totally incorrect about your assertion that the money being transferred to someone else has to pay tax on it, the person who died (and yes already paid tax on it) is taxed again....

No more incorrect, in fact less so then your assertion that dead people are taxed on money they have already paid tax on. Dead people are not taxed as they don't have any money. Dead people don't have any possessions at all.

[PhilboSE]

Only about 3% of the population pay IHT yet it raises roughly the same amount of money as capital gains or the tax on beer. So it's obviously targetted at a very small section of the populace, unlike every other tax.

It's also a tax that's not associated with an elective transaction, again unlike every other tax.

It's also a tax that's harder to plan for, as most people don't know when they will die - and almost never 7 years in advance. IHT is completely avoidable - if you plan well in advance then you ought to be able to manage your liability and reduce it significantly or to nil. However if you get unlucky and die young then there can be a swinging 40% tax applied to your estate.

There's no other tax that affects so few people in way such that their liability varies according to timing and luck.

[TwigtheWonderkid]

PhilboSE said:

There's no other tax that affects so few people in way such that their liability varies according to timing and luck.

You make that sound like a bad thing!

[Craigyp79]

RobinOakapple said:

HotJambalaya said:

RobinOakapple said:

You may have paid tax on it, but your daughter hasn't. All the money you pay to anybody has already had tax paid on it, when it transfers to someone else they have to pay tax on it too. That's how tax works.

Wow, I wonder on what knowledge basis you are saying that.

I wonder it because just the other day, I was chatting to a tax advisor about this issue, and her point was that in the UK, IHT is taxed on the source, NOT on the beneficiary. So for example, if someone in the cayman islands or some jurisdiction with no IHT died, and left me a wedge of cash I wouldnt be taxed a penny on it. The UK doesn't tax the beneficiary, so taking that into consideration, you are utterly, and totally incorrect about your assertion that the money being transferred to someone else has to pay tax on it, the person who died (and yes already paid tax on it) is taxed again....

No more incorrect, in fact less so then your assertion that dead people are taxed on money they have already paid tax on. Dead people are not taxed as they don't have any money. Dead people don't have any possessions at all.

The clue is in the tax rules, which somewhat unfairly for UK based IHT payers state:" The UK does not impose any inheritance taxes on the receipt of a legacy as it assumes that tax has already been paid by the estate of the deceased".


Further if the said country asked for tax to be paid on any amount being taken out of that country back to the UK, who would pay that?

[RobinOakapple]

Craigyp79 said:

The clue is in the tax rules, which somewhat unfairly for UK based IHT payers state:" The UK does not impose any inheritance taxes on the receipt of a legacy as it assumes that tax has already been paid by the estate of the deceased".

The estate of the deceased is not the same as the dead person owning anything. The estate does not belong to the deceased because he or she is dead. It belongs to whoever it is bequeathed to (minus taxes and disbursements).