Dear Bear, inheritance tax wasn’t on my radar, still this was another interesting read. My only thoughts on inheritance tax are that the extremely wealthy people seem to avoid it somehow. The Duke of Westminster, for example didn’t pay any tax on the £9 billion estate he inherited.
Brilliant summing up of the situation. I wish I'd thought of expressing it as a way to perpetuate inequality without having to name it. But I will, I will...
Love. This. And, spot on too! We have chosen not to have children either. Had I been able to give birth to kittens, I might have gone ahead, but the option didn't present itself to me! I'm lucky to have some delightful nieces, nephews and great versions of both! Great, as in, the children of the aforementioned nieces and nephews! Inheritance tax, when either John or I leave this challenging, but ultimately wonderful planet, probably isn't going to be a huge issue! 😉 But, on a slightly different note, will my delightful family be a bit upset if I leave a large part of whatever is left, to animal charities?!? Hey ho! I'll be dead, so hopefully, I'll also be guilt free! 😎 Much love to you and your husband, dearest Bear 🐻 xx
Firstly, as you say, it is a tax on wealth your have already paid tax on - income, VAT, stamp duty. You did not "choose" to die, and so have little option to defer or mitigate this liability.
Conversely, in modern Britain, the bulk of this wealth in fact wasn't earned. It was the consequence of house prices inflation, which is itself the consequence of a massive expansion of the mortgage debt market. This "wealth" is backed by the endebtedness of our children. That's why it's fair that they should benefit, beyond the obvious of not wanting ones children to be homeless. It seems to unfairly penalize those who live frugally and carefully to build security for their futures. It's in stark contrast to the messages we're sent in almost every other public finance advice.
To right these two wrongs, two things need to change:
1. Unearned house price gains should be subject to some level of CGT, like any other asset that appreciates. This would also damp down property speculation, since buying and selling now has a cost. Stamp duty should be abolished as a result.
2. Abolish inheritance tax, and tax the recipients alongside their income. This would encourage people to spread their legacy as widely as possible, to maximum the tax free portions their beneficiaries enjoy.
There should be obvious deferments for children who live with their parents. Adding homelessness to grief is just plain wrong.
As a side note, the fact that unearned income is taxed so much more generously than earned income is also a perversity. Someone earning minimum wage pays almost 50% more in income taxes compared to someone with a £600k nest egg that produces the same in interest. It's wrong that two people recieving the same amount of money pay are taxed so that the worker subsidies the fortunate asset holder.
My in-laws were obsessed by inheritance tax. They cut themselves off from family by moving to Australia for the last 15 years of their lives as there was no inheritance tax to pay there. They lived without air conditioning on the Sunshine Coast with temperatures often reaching low forties during summer because installing air conditioning would have meant less inheritance to leave. They chose to live lonely and penny pinching lives all for the sake of saving on inheritance tax. They saw their grandchildren every three to five years all so they could leave more to their sons and who by the stage they died were doing very well and didn’t need the money. The grandchildren have benefitted and it will help them get on the housing ladder a bit earlier but we would all have preferred they lived in comfort in their declining years spending time with family. We told them this again and again but they were obsessed. We never counted on the money we might inherit because we were aware that if they needed care it could have all vanished and needing care was more of a possibility given they chose to live so far away. So so sad and the situation has taught hubby and I to live for now. We have given our children every opportunity we could so they can be successful adults and not depend on an inheritance from us in the future. They are privileged because of their grandparents’s inheritance though and we and they acknowledge this.
Even as an only child at the end point of a not very populated birth family, I bloody well knew better than to incur debt against my future "expectations".
● How often do wealthy parents go into care and nothing is left behind even for children still living in the home? Who may have crippled themselves financially by previously being the carers themselves?
● How many parents quietly did that thing where you sign over all or part of your house in order to spend the money yourselves?
● Is the Precious Childhood Home going to turn out to be a hard-to-sell money pit?
● Are your co-heirs going to piss away the money contesting the will?
And plenty more what-ifs to dissuade a sensible person from counting on that windfall.
Get to the age I am now, and you've either heard them all, or experienced them.
Regardless of the rights or wrongs of IHT per-se, my personal bugbear is the way HMRC make you implement it. Some 20 years ago I was executor for my late mother's estate, not enormous, in fact around about Bear's example figures, and IHT of ~£60k was payable. What I discovered was that the legal process requires the executor to pay the assessed IHT before probate is issued; and probate is what allows you to access the funds and property in the estate. So if you and the beneficiaries don't have that kind of cash to hand, you end up taking out a loan at a handsome interest rate, which the banks know they can charge as they have you over a barrel.
My mother had also put a large chunk of her savings into a trust fund for her grandchildren, leaving the remainder below £325k. A trust falls outside the estate if you die more than 7 years after putting the money into it. The rules say that from year 3 to 7 this money gets what's called "taper relief" for IHT, so if you only survive some of the 7 years, only a portion of IHT is available. My mother died only a few weeks short of the 7 years, so I though we'd at least benefit from the taper relief. But no! HMRC have some cunning rules specifying how you add up the various elements of the estate, which negate any reduction in IHT you thought you might get. It works out that you are only likely to benefit from taper relief if you manage to give away the nil-rate band (£325k) every year in the few years before you die, so it's a rule specifically created for the very wealthy. My sisters and I ended up effectively paying IHT on the money in the trust which went to our kids.
I just found myself wrestling with a system that seemed to have been designed deliberately to piss you off!
There's another angle that supports your point: IHT is avoidable if you trust your children. You only pay it if you try to keep control of your assets until death.
You do not pay tax on gifts to children, and those gifts are free and clear of IHT when 7 years have passed. Thus, if your children owe IHT, it's usually because you did not trust them with the assets before you died.
Take Clarkson's "family farm" as an example: Clarkson is 65, and can reasonably expect to live until he's 73 (indeed, he's likely to make it to 85, based on ONS data). If he gifted his assets to his children now, they are more likely than not to avoid paying any IHT on their inheritance.
The issue for Clarkson is that by doing this, he puts his fate in his children's hands. If they decide that they hate him, they could sell their inheritance and make him homeless, or refuse to let him do something he wants to do with "his money", since it's theirs now. But if it's about "keeping the farm in the family", that's a risk anyway - it's just been moved from "after you die" to "before you die".
They'd have to make him homeless anyway. Gifting is only exempt if it is a "gift without reservation", meaning the giver cannot benefit from it in any way once given. That includes living in it, growing things on it and renting it.
Don't worry. The rich having plenty of other legal wheezes to pass on assets if they try hard, such as trusts and limited companies
They don't have to make him homeless - he's quite allowed to live in their spare room on their new farm. He just has to trust that his children will support him in his old age.
He can't rent it out, or grow things to sell himself (but he can help his children with their new farm).
But again, he has to trust them to not abuse him.
Trusts are useful here to prove that he really is just living in their spare room, and not still the owner of the farm - but that's just one way to show that he no longer has the benefit of the asset he gifted.
He actually can't live in the spare room unless he pays market rent. Anything else would be a "reservation". Of course, HMRC have to find him first.
One big problem with the UK is personal taxation is broadly an honour system. Getting caught is actually quite unlikely. It relies on the honesty of much of the population. Which makes it easy for cheats to prosper
My parents bought their house for £1000 in 1964. Some 60 years later similar properties have sold for £400,000+. In my maternal grandfather's day virtually everyone rented and if you had the misfortune to find yourself out of work you were expected to sell all extraneous crockery, family silver, dining chair et al before you had any hope of state support. In his father's time there were probably still work houses waiting for unfortunates. The blessing of financial inheritance for most people has only been a reality for the last 40 to 50 years, if that. The fuss over inheritance tax has been a long running faff stirred up by the small percentage of people it has usually affected, who have usually been people in a position to make a public fuss in media and politics. It's the same group who are stirring it now, targeting people like me who potentially stand to be a nice chunk of cash better off (I'd rather have my last remaining parent around personally) and don't understand the math of it. Wealthy people generally are wealthy because of the effort they put into holding on to their cash and stuff everyone else
The framing as a proxy for broader economic anxiety is spot-on. I've noticed the inheritance tax debate always gets loudest during periods of wage stagnation and housing crises. Jan's point about the extremely wealthyavoiding it is key too, the 1-in-20 stat shows this is really about protecting dynastic wealth concentration while middle-income folks worry about passing on a modest flat.
Dear Bear, inheritance tax wasn’t on my radar, still this was another interesting read. My only thoughts on inheritance tax are that the extremely wealthy people seem to avoid it somehow. The Duke of Westminster, for example didn’t pay any tax on the £9 billion estate he inherited.
Nor did ANY of the ... monarchy... the largest group of parasites that dish out the order of the Brown Nose to their loyal servants...
Brilliant summing up of the situation. I wish I'd thought of expressing it as a way to perpetuate inequality without having to name it. But I will, I will...
Love. This. And, spot on too! We have chosen not to have children either. Had I been able to give birth to kittens, I might have gone ahead, but the option didn't present itself to me! I'm lucky to have some delightful nieces, nephews and great versions of both! Great, as in, the children of the aforementioned nieces and nephews! Inheritance tax, when either John or I leave this challenging, but ultimately wonderful planet, probably isn't going to be a huge issue! 😉 But, on a slightly different note, will my delightful family be a bit upset if I leave a large part of whatever is left, to animal charities?!? Hey ho! I'll be dead, so hopefully, I'll also be guilt free! 😎 Much love to you and your husband, dearest Bear 🐻 xx
No-one has the right to an inheritance. Any inheritance is a bonus. Bonuses are taxed. End of.
The problems with inheritance tax are manifold.
Firstly, as you say, it is a tax on wealth your have already paid tax on - income, VAT, stamp duty. You did not "choose" to die, and so have little option to defer or mitigate this liability.
Conversely, in modern Britain, the bulk of this wealth in fact wasn't earned. It was the consequence of house prices inflation, which is itself the consequence of a massive expansion of the mortgage debt market. This "wealth" is backed by the endebtedness of our children. That's why it's fair that they should benefit, beyond the obvious of not wanting ones children to be homeless. It seems to unfairly penalize those who live frugally and carefully to build security for their futures. It's in stark contrast to the messages we're sent in almost every other public finance advice.
To right these two wrongs, two things need to change:
1. Unearned house price gains should be subject to some level of CGT, like any other asset that appreciates. This would also damp down property speculation, since buying and selling now has a cost. Stamp duty should be abolished as a result.
2. Abolish inheritance tax, and tax the recipients alongside their income. This would encourage people to spread their legacy as widely as possible, to maximum the tax free portions their beneficiaries enjoy.
There should be obvious deferments for children who live with their parents. Adding homelessness to grief is just plain wrong.
As a side note, the fact that unearned income is taxed so much more generously than earned income is also a perversity. Someone earning minimum wage pays almost 50% more in income taxes compared to someone with a £600k nest egg that produces the same in interest. It's wrong that two people recieving the same amount of money pay are taxed so that the worker subsidies the fortunate asset holder.
My in-laws were obsessed by inheritance tax. They cut themselves off from family by moving to Australia for the last 15 years of their lives as there was no inheritance tax to pay there. They lived without air conditioning on the Sunshine Coast with temperatures often reaching low forties during summer because installing air conditioning would have meant less inheritance to leave. They chose to live lonely and penny pinching lives all for the sake of saving on inheritance tax. They saw their grandchildren every three to five years all so they could leave more to their sons and who by the stage they died were doing very well and didn’t need the money. The grandchildren have benefitted and it will help them get on the housing ladder a bit earlier but we would all have preferred they lived in comfort in their declining years spending time with family. We told them this again and again but they were obsessed. We never counted on the money we might inherit because we were aware that if they needed care it could have all vanished and needing care was more of a possibility given they chose to live so far away. So so sad and the situation has taught hubby and I to live for now. We have given our children every opportunity we could so they can be successful adults and not depend on an inheritance from us in the future. They are privileged because of their grandparents’s inheritance though and we and they acknowledge this.
Seems to me the ones shouting the loudest against it, are the ones who have the most.
Even as an only child at the end point of a not very populated birth family, I bloody well knew better than to incur debt against my future "expectations".
● How often do wealthy parents go into care and nothing is left behind even for children still living in the home? Who may have crippled themselves financially by previously being the carers themselves?
● How many parents quietly did that thing where you sign over all or part of your house in order to spend the money yourselves?
● Is the Precious Childhood Home going to turn out to be a hard-to-sell money pit?
● Are your co-heirs going to piss away the money contesting the will?
And plenty more what-ifs to dissuade a sensible person from counting on that windfall.
Get to the age I am now, and you've either heard them all, or experienced them.
Regardless of the rights or wrongs of IHT per-se, my personal bugbear is the way HMRC make you implement it. Some 20 years ago I was executor for my late mother's estate, not enormous, in fact around about Bear's example figures, and IHT of ~£60k was payable. What I discovered was that the legal process requires the executor to pay the assessed IHT before probate is issued; and probate is what allows you to access the funds and property in the estate. So if you and the beneficiaries don't have that kind of cash to hand, you end up taking out a loan at a handsome interest rate, which the banks know they can charge as they have you over a barrel.
My mother had also put a large chunk of her savings into a trust fund for her grandchildren, leaving the remainder below £325k. A trust falls outside the estate if you die more than 7 years after putting the money into it. The rules say that from year 3 to 7 this money gets what's called "taper relief" for IHT, so if you only survive some of the 7 years, only a portion of IHT is available. My mother died only a few weeks short of the 7 years, so I though we'd at least benefit from the taper relief. But no! HMRC have some cunning rules specifying how you add up the various elements of the estate, which negate any reduction in IHT you thought you might get. It works out that you are only likely to benefit from taper relief if you manage to give away the nil-rate band (£325k) every year in the few years before you die, so it's a rule specifically created for the very wealthy. My sisters and I ended up effectively paying IHT on the money in the trust which went to our kids.
I just found myself wrestling with a system that seemed to have been designed deliberately to piss you off!
There's another angle that supports your point: IHT is avoidable if you trust your children. You only pay it if you try to keep control of your assets until death.
You do not pay tax on gifts to children, and those gifts are free and clear of IHT when 7 years have passed. Thus, if your children owe IHT, it's usually because you did not trust them with the assets before you died.
Take Clarkson's "family farm" as an example: Clarkson is 65, and can reasonably expect to live until he's 73 (indeed, he's likely to make it to 85, based on ONS data). If he gifted his assets to his children now, they are more likely than not to avoid paying any IHT on their inheritance.
The issue for Clarkson is that by doing this, he puts his fate in his children's hands. If they decide that they hate him, they could sell their inheritance and make him homeless, or refuse to let him do something he wants to do with "his money", since it's theirs now. But if it's about "keeping the farm in the family", that's a risk anyway - it's just been moved from "after you die" to "before you die".
They'd have to make him homeless anyway. Gifting is only exempt if it is a "gift without reservation", meaning the giver cannot benefit from it in any way once given. That includes living in it, growing things on it and renting it.
Don't worry. The rich having plenty of other legal wheezes to pass on assets if they try hard, such as trusts and limited companies
They don't have to make him homeless - he's quite allowed to live in their spare room on their new farm. He just has to trust that his children will support him in his old age.
He can't rent it out, or grow things to sell himself (but he can help his children with their new farm).
But again, he has to trust them to not abuse him.
Trusts are useful here to prove that he really is just living in their spare room, and not still the owner of the farm - but that's just one way to show that he no longer has the benefit of the asset he gifted.
He actually can't live in the spare room unless he pays market rent. Anything else would be a "reservation". Of course, HMRC have to find him first.
One big problem with the UK is personal taxation is broadly an honour system. Getting caught is actually quite unlikely. It relies on the honesty of much of the population. Which makes it easy for cheats to prosper
Being that I am a born and bred Alloa boy I personally don't want anymore STIRLINGS in existence! IYKYK 😉
I'll settle for more STARLINGS tho and probably a tad more STERLING wouldn't go amiss! 😁
My parents bought their house for £1000 in 1964. Some 60 years later similar properties have sold for £400,000+. In my maternal grandfather's day virtually everyone rented and if you had the misfortune to find yourself out of work you were expected to sell all extraneous crockery, family silver, dining chair et al before you had any hope of state support. In his father's time there were probably still work houses waiting for unfortunates. The blessing of financial inheritance for most people has only been a reality for the last 40 to 50 years, if that. The fuss over inheritance tax has been a long running faff stirred up by the small percentage of people it has usually affected, who have usually been people in a position to make a public fuss in media and politics. It's the same group who are stirring it now, targeting people like me who potentially stand to be a nice chunk of cash better off (I'd rather have my last remaining parent around personally) and don't understand the math of it. Wealthy people generally are wealthy because of the effort they put into holding on to their cash and stuff everyone else
The framing as a proxy for broader economic anxiety is spot-on. I've noticed the inheritance tax debate always gets loudest during periods of wage stagnation and housing crises. Jan's point about the extremely wealthyavoiding it is key too, the 1-in-20 stat shows this is really about protecting dynastic wealth concentration while middle-income folks worry about passing on a modest flat.