Inheritance Tax

[Wibble]

I don't think its just semantics. Its the only rational (IMO) way to look at taxation because if you start looking at tax as something that is tied to the actually #s of money itself, it leads to some wonky conclusions like the example I mentioned above where someone doing work on my house shouldn't get taxed because the money I paid them with "was already taxed". I find it to be an irrational and a pragmatically impossible way to look at taxes. Taxes happen with new income to a new person. That's the only fair and only practical way for taxes to work.

How to structure things like an inheritance tax to make it fair for the average middle class person is a different issue but claiming its "double taxation" really doesn't make any sense nor is that a workable way to view taxation in general.

It was abolished here in 1981 because it raised little revenue, was very complex and expensive to administer, but primarily because it was percieved as unfair due to the asset being bought with already taxed money. We have added a GST (VAT) since so it doesn't seem to have been unworkable in any way shape or form.

The only thing that would be more unpopular than an inheritance tax here would be abolishing being able to treat an investment property like every other investment i.e. claiming costs including interest and depreciation against the income. It of course contributes to the housing crisis, although the almost total lack of social/low cost housing is the biggest factor, but it is so baked in to middle Australia's investment/retirement planning that it would be electoral suicide to propose changes. Indeed it was for the Liberals in the 1993 election that they should have won at a canter.

 

[Ekkie Thump]

This is probably the first post I have read by someone who says that his family will most likely have to pay IHT when he dies, because of the size of his estate.
And he is fine with that.

So many people pontificate about how wonderful IHT is, giving all sorts of opinions on how it should be applied, even though they know they it doesn't or won't apply to them.
Because of that, I take little or no notice of what they are spouting.
It is so easy to say things when we know it won't have any effect on us.

So well done for saying what you have said.

Quite right. I also have no interest in poor people having opinions about taxation. Why should I listen to some two bit carer on minimum wage when it comes to him pontificating about higher rates? The only people who's opinion matters in such a circumstance are those with means.

 

[Posh Red]

I know how it works but the level it comes in is ludicrously low given the cost of real estate, particularly in the SE. And people could avoid it, but the very people who wouldn't know how to (or even that they need to) are those victimised by such an unfair tax. Exclude the family owner occupied home, as they do here, and the problem is solved.

It’s not ludicrously low though, which bears out in the statistics. Again, you can get help reducing or circumventing the tax from a financial adviser. If all of my clients were above the inheritance tax threshold I would be extremely happy

 

[Kinsella]

I very much have the issue with the modern tendency to use it as a pejorative,

I'd say that tendency correlates with the amplification of 'virtue signalling' human behaviour in the current digital age.

and if you read my latter reply to Maticmaker you'll see I’m also very active on this issue too.

That's good to hear.

 

[jojojo]

Congrats Millennials - you are on track to be the wealthiest generation ever. Though admittedly you'll have to wait for your parents to die.

I've been known to accuse my (boomer) generation of benefiting from a social mobility ladder that they've subsequently allowed to be destroyed.

The vague idea that having talent and working hard was relevant to your financial outcomes was kind of key to most boomers lives. I think it's also part of why they sound quite so hostile to younger generations - most boomers do think, not entirely unreasonably, that they deserve whatever good stuff (like houses and pensions) they've got.

So what does the collapse of that social mobility ladder mean to the millennials and their descendants? Interesting article from the Guardian suggesting that it means that we've broken the social contract that hoped "talent and working hard" etc mattered when it came to financial security.

Millennials will be the richest generation ever, but who gets that wealth is down to luck | Martha Gill https://www.theguardian.com/comment...ration-ever-but-who-gets-wealth-is-up-to-luck

 

[Frosty]

Congrats Millennials - you are on track to be the wealthiest generation ever. Though admittedly you'll have to wait for your parents to die.

I've been known to accuse my (boomer) generation of benefiting from a social mobility ladder that they've subsequently allowed to be destroyed.

The vague idea that having talent and working hard was relevant to your financial outcomes was kind of key to most boomers lives. I think it's also part of why they sound quite so hostile to younger generations - most boomers do think, not entirely unreasonably, that they deserve whatever good stuff (like houses and pensions) they've got.

So what does the collapse of that social mobility ladder mean to the millennials and their descendants? Interesting article from the Guardian suggesting that it means that we've broken the social contract that hoped "talent and working hard" etc mattered when it came to financial security.

Millennials will be the richest generation ever, but who gets that wealth is down to luck | Martha Gill https://www.theguardian.com/comment...ration-ever-but-who-gets-wealth-is-up-to-luck

On a related note:

Billionaires increased in numbers and overall wealth last year, Swiss bank UBS (UBSG.S)
, opens new tab said on Thursday, with the fortunes inherited by the newly-minted super-rich exceeding cash generated by self-made billionaires for the first time in years.

The number of billionaires rose by 7% to 2,544 people globally, UBS said in its 2023 Billionaires Ambitions Report, with their total worth rising by 9% to an estimated $12 trillion.

For the first time since the study started in 2015, billionaires accumulated more wealth via inheritance than through their own business activities.

Among the 137 new billionaires, a total of $150.8 billion was inherited by 53 heirs over the last year, exceeding the 84 new self-made billionaires' total of $140.7 billion, the bank said.

The generational wealth transfer is gaining momentum as more money passes through the generations, said UBS, which oversees $5.5 trillion in invested assets and is one of the world's biggest wealth managers.

https://www.reuters.com/business/ub...ay-entrepreneurs-inherited-wealth-2023-11-30/

 

[Bert_]

On a related note:

Billionaires increased in numbers and overall wealth last year, Swiss bank UBS (UBSG.S)
, opens new tab said on Thursday, with the fortunes inherited by the newly-minted super-rich exceeding cash generated by self-made billionaires for the first time in years.

The number of billionaires rose by 7% to 2,544 people globally, UBS said in its 2023 Billionaires Ambitions Report, with their total worth rising by 9% to an estimated $12 trillion.

For the first time since the study started in 2015, billionaires accumulated more wealth via inheritance than through their own business activities.

Among the 137 new billionaires, a total of $150.8 billion was inherited by 53 heirs over the last year, exceeding the 84 new self-made billionaires' total of $140.7 billion, the bank said.

The generational wealth transfer is gaining momentum as more money passes through the generations, said UBS, which oversees $5.5 trillion in invested assets and is one of the world's biggest wealth managers.

https://www.reuters.com/business/ub...ay-entrepreneurs-inherited-wealth-2023-11-30/

We're swan diving into a new feudal age. At the bare minimum the recipient of the inheritance should be taxed the same as income tax. I'd argue it should be way higher since they haven't actually worked for it.

 

[Bert_]

Woot. What is that? Half a 2 bed flat in London?

My objection is that it is double taxing. I paid tax on what was then used to accumulate a little something to pass on. To then have it taxed again putting my son on the same no-win path is terribly unethical. Doubly so if the family property had to be sold to pay the tax.

If the threshold was higher or maybe if there was a total exemption if a primary residence was passed down and used for non-investment purposes for (say) 5 years, then I'd have less issue with it.

It's not double taxed. The person(s) inheriting are paying tax on their (unearned) gains.

 

[Wibble]

It's not double taxed. The person(s) inheriting are paying tax on their (unearned) gains.

The tax was paid by the person who earned the asset. Taxing it again when it is passed on, on top of any CGT owing, just allows the very rich to maintain their wealth and priveledge at the expense of the rest of us, who aren't wealthy but lucky enough to have relatives who work hard enough and are smart enough to accumulate assets. If you want to increase social and economic mobility inheritance tax isn't the way to do it.

And I inherited nothing so it isn't about that.

 

[Bert_]

The tax was paid by the person who earned the asset. Taxing it again when it is passed on, on top of any CGT owing, just allows the very rich to maintain their wealth and priveledge at the expense of the rest of us, who aren't wealthy but lucky enough to have relatives who work hard enough and are smart enough to accumulate assets. If you want to increase social and economic mobility inheritance tax isn't the way to do it.

And I inherited nothing so it isn't about that.

How does passing on wealth help social and economic mobility in a society? All it does is ultimatley create generational wealth and reinforces the haves and have nots.

 

[Wibble]

How does passing on wealth help social and economic mobility in a society? All it does is ultimatley create generational wealth and reinforces the haves and have nots.

There is a big problem with the very lowest socio-economic groups being left behind but inheritance tax is designed to keep middle England in it's "place" and further enriching the very wealthy, who can afford to avoid inheritance tax. The problem isn't those on the lower rungs of the property ladder but they get taxed. This was exactly why the tax was abolished in Australia.

 

[Pogue Mahone]

There is a big problem with the very lowest socio-economic groups being left behind but inheritance tax is designed to keep middle England in it's "place" and further enriching the very wealthy, who can afford to avoid inheritance tax.

I don't get this. How does inheritance tax further enrich the very wealthy?

I'm not a fan of inheritance tax because it seems cruel to so often put the recently bereaved through the hassle and potential heartache of immediately selling their family home but I've never seen it as a way to make wealthy people more wealthy. How would that work?

 

[Wibble]

I don't get this. How does inheritance tax further enrich the very wealthy?

I'm not a fan of inheritance tax because it seems cruel to so often put the recently bereaved through the hassle and potential heartache of immediately selling their family home but I've never seen it as a way to make wealthy people more wealthy. How would that work?

Because they don't pay it, but you and I do if we happen to own a home (or our kids will rather). And that disadvantage is passed on through the generations. At the very least the family home should be excluded.

 

[Jippy]

I don't get this. How does inheritance tax further enrich the very wealthy?

I'm not a fan of inheritance tax because it seems cruel to so often put the recently bereaved through the hassle and potential heartache of immediately selling their family home but I've never seen it as a way to make wealthy people more wealthy. How would that work?

I think more the fact the rich have loads of tax planning ruses to avoid it, with those getting caught in the IHT net tending to be more middle Englanders whose property went up in value.

 

[Pogue Mahone]

Because they don't pay it, but you and I do if we happen to own a home (or our kids will rather). And that disadvantage is passed on through the generations. At the very least the family home should be excluded.

Sure. The mega rich avoid any and all forms of taxation. But using the logic that any tax is unfair if billionaires can avoid it would also mean we should scrap income tax and CGT, which I doubt you’d be in favour of?

 

[Bert_]

There is a big problem with the very lowest socio-economic groups being left behind but inheritance tax is designed to keep middle England in it's "place" and further enriching the very wealthy, who can afford to avoid inheritance tax. The problem isn't those on the lower rungs of the property ladder but they get taxed. This was exactly why the tax was abolished in Australia.

As Pogue said, the rich will do whatever they can to make sure thier estates are "tax efficient". Thats not a valid reason to abandon it though. Clamp down on those who attempt to swerve it and make sure they pay their fair share.

The lower rungs of the property ladder aren't getting taxed at all. Anyone inheriting less than £325k pays no tax on it. That's 11+ years of average take home salary in the UK.

 

[africanspur]

Because they don't pay it, but you and I do if we happen to own a home (or our kids will rather). And that disadvantage is passed on through the generations. At the very least the family home should be excluded.

For all intents and purposes, it will be for the overwhelming majority of people in the UK.

You get £325k per parent. If they're also passing on their primary residence, you get an extra £175k on top for each parents. Thats £1 million.

The average house price in the UK is <£300k. Just over £500k in London.

There's no area of the UK where £1 million wouldn't comfortably fit you beneath the threshold.

 

[Wibble]

For all intents and purposes, it will be for the overwhelming majority of people in the UK.

You get £325k per parent. If they're also passing on their primary residence, you get an extra £175k on top for each parents. Thats £1 million.

The average house price in the UK is <£300k. Just over £500k in London.

There's no area of the UK where £1 million wouldn't comfortably fit you beneath the threshold.

So it raises sod all revenue while doing nothing to address social and economic mobility issues. Yet forces those it does effect to have to raise loans to keep the family home in the family or to sell the family home.

 

[Wibble]

As Pogue said, the rich will do whatever they can to make sure thier estates are "tax efficient". Thats not a valid reason to abandon it though. Clamp down on those who attempt to swerve it and make sure they pay their fair share.

The lower rungs of the property ladder aren't getting taxed at all. Anyone inheriting less than £325k pays no tax on it. That's 11+ years of average take home salary in the UK.

It isn't any years of salary if it is the family home your family want to continue to live in.

Exclude the family home and apply normal CGT rules to the rest and inheritance tax can be abolished.

 

[K Stand Knut]

The bit I love about this IHT ‘argument’ is people making it out that only the super rich have access to the ability to avoid it in the first place.

A half-decent IFA is reasonably cheap and if you’re lucky enough to be able to inherit more than £1m, you can sure as hell avoid it if you deal with it early enough.

IHT, or people avoiding the payment of it is not a societal problem, IMO. Lots of other things are. If they get sorted, then look at how IHT can be changed to make more money for the government.

I will almost guarantee that if you are not allowed to pass anything down as inheritance on death, people will just get financial advice to work out how to avoid it sooner

 

[Bert_]

It isn't any years of salary if it is the family home your family want to continue to live in.

Exclude the family home and apply normal CGT rules to the rest and inheritance tax can be abolished.

I understand the sentiment but the family home is still a tangible asset that the inheritor hasn't paid for. If your children want to keep it after you're gone then they should buy it just as you had to do. If they wait until you and your partner depart from the world, then they'll get it for less than half market price by default.

Edit - Far less than half market price. 40% on anything after £650k for a married couple. A £1 million house will cost you about £140k in tax if inherited. Pretty good deal for the recipients.
Edit 2 - If you're a married couple and have your paperwork in order then you're kids can have your £1 million house tax free.

 

[africanspur]

So it raises sod all revenue while doing nothing to address social and economic mobility issues. Yet forces those it does effect to have to raise loans to keep the family home in the family or to sell the family home.

It raises literal billions and almost 1% of the Uk government budget. It is not sod all.

There's no right to keep the family home. Its an inherently very emotive argument. Anyone having to pay inheritance tax on a family home in the UK is, assuming 2 parents, inheriting £1 million of free money that they have done literally nothing whatsoever to earn. For what its worth, this £1 million switch of assets to a single child would immediately put them in the 83rd percentile of wealth in the UK, assuming they literally had not a single penny to their name before. It seems this is not dissimilar to Australia. We're not talking about some squeezed middle here.

The loan they are raising to keep the family home in your situation would be, for instance £80,000 on a £1.2 million house.

As others have pointed out, the solution to the even richer abusing the system is not to abolish it entirely. It is to tighten it up, implement a wealth tax on top and not to just give up because some of the very wealthy get around it.

 

[Wibble]

It raises literal billions and almost 1% of the Uk government budget. It is not sod all.

There's no right to keep the family home. Its an inherently very emotive argument. Anyone having to pay inheritance tax on a family home in the UK is, assuming 2 parents, inheriting £1 million of free money that they have done literally nothing whatsoever to earn. For what its worth, this £1 million switch of assets to a single child would immediately put them in the 83rd percentile of wealth in the UK, assuming they literally had not a single penny to their name before. It seems this is not dissimilar to Australia. We're not talking about some squeezed middle here.

The loan they are raising to keep the family home in your situation would be, for instance £80,000 on a £1.2 million house.

As others have pointed out, the solution to the even richer abusing the system is not to abolish it entirely. It is to tighten it up, implement a wealth tax on top and not to just give up because some of the very wealthy get around it.

In that case it is 1 billion of very unfairly collected revenue resulting in the very wealthy benefiting and being paid for by middle England (again).

Not to mention the Queen legally being exempted so doesn't even have to avoid the tax.

 

[Sweet Square]

Not to mention the Queen legally being exempted so doesn't even have to avoid the tax.

 

[Bert_]

In that case it is 1 billion of very unfairly collected revenue resulting in the very wealthy benefiting and being paid for by middle England (again).

Not to mention the Queen legally being exempted so doesn't even have to avoid the tax.

The super rich avoiding tax is a different debate Wibble. Don't try to build a strawman out of it.

 

[Wibble]

The super rich avoiding tax is a different debate Wibble. Don't try to build a strawman out of it.

No it isn't at all and it isn't just the super rich, it is the top end of town in general and not just a handful of billionaires. Inheritance and property inheritance in particular is a major way that the very rich maintain their priveledge and wealth. Forcing portion of middle England to sell family property to pay an inheritance tax is helping to keep the wall between the upper classes and the rest of us intact. The barriers to entry to property for the lower socio-economic groups is also a huge and pervasive problem, but it isn't either or.

 

[Wibble]

It raises literal billions and almost 1% of the UK government budget. It is not sod all.

Billions sounds good (although a piss in the ocean compared to tax avoidance higher up the scale) but isn't inheritance tax only 0.3% of GDP?

 

[Bert_]

No it isn't at all and it isn't just the super rich, it is the top end of town in general and not just a handful of billionaires. Inheritance and property inheritance in particular is a major way that the very rich maintain their priveledge and wealth. Forcing portion of middle England to sell family property to pay an inheritance tax is helping to keep the wall between the upper classes and the rest of us intact. The barriers to entry to property for the lower socio-economic groups is also a huge and pervasive problem, but it isn't either or.

I agree with you about the wealthiest and their generational priveledge but surely the solution is to take action against that generational privilage and not adhere to it? Let alone reinforce it by making it the norm. Your argument comes across as the standard "if you can't beat 'em, join 'em" point of view and I understand why. It's a very emotive topic especially when it concerns your kids and their future.

I'm no economist but the fairest way I can see to deal with it would be a 100% tax on all inheritance, property or otherwise. Remove generational wealth and force people to make their own living. If that doesn't work then accept society is broken and start looking more holistically at why there is a need to hand over money to your offspring for them to at a minimum, mirror your path in life.

 

[Wibble]

I agree with you about the wealthiest and their generational priveledge but surely the solution is to take action against that generational privilage and not adhere to it?

That is plainly never going to happen in a country so in love with being told what to do by the top end of town.

Let alone reinforce it by making it the norm.

It is the norm. And has been for many many decades.

Your argument comes across as the standard "if you can't beat 'em, join 'em" point of view and I understand why. It's a very emotive topic especially when it concerns your kids and their future.

I don't have to join them as I now live in a country where there is no inheritance tax, and only CGT, with the family home essentially exempt on death.

I'm no economist but the fairest way I can see to deal with it would be a 100% tax on all inheritance, property or otherwise. Remove generational wealth and force people to make their own living. If that doesn't work then accept society is broken and start looking more holistically at why there is a need to hand over money to your offspring for them to at a minimum, mirror your path in life.

Even serious lefties (like me) recognise that you need to maintain personal financial incentives. Even the suggestion of such an inheritance tax would make you public enemy #1 and any party that flirted with it would be unelectable indefinitely.

 

[Bert_]

That is plainly never going to happen in a country so in love with being told what to do by the top end of town.



It is the norm. And has been for many many decades.



I don't have to join them as I now live in a country where there is no inheritance tax, and only CGT, with the family home essentially exempt on death.



Even serious lefties (like me) recognise that you need to maintain personal financial incentives. Even the suggestion of such an inheritance tax would make you public enemy #1 and any party that flirted with it would be unelectable indefinitely.

It is the norm unfortunatley and it's taboo to discuss it. At some point the discussion will need to to be had though. If you need to rely on assets or financial gifts from parents to get on in life then something is broken and society will force an adjustment at some point once the hand-me-downs dry up.

Most likely through the collapse of the property bubble once the market starts eating itself and restricts any new participants entering to prop it up because they're simply priced out. Reducing number of new buyers will inevitably lead to the bottom falling out and a collapse. Once that happens, those properties handed down might become a burden rather than an assest.

 

[Kinsella]

I agree with you about the wealthiest and their generational priveledge but surely the solution is to take action against that generational privilage and not adhere to it? Let alone reinforce it by making it the norm. Your argument comes across as the standard "if you can't beat 'em, join 'em" point of view and I understand why. It's a very emotive topic especially when it concerns your kids and their future.

I'm no economist but the fairest way I can see to deal with it would be a 100% tax on all inheritance, property or otherwise. Remove generational wealth and force people to make their own living. If that doesn't work then accept society is broken and start looking more holistically at why there is a need to hand over money to your offspring for them to at a minimum, mirror your path in life.

 

[Wibble]

It is the norm unfortunatley and it's taboo to discuss it. At some point the discussion will need to to be had though. If you need to rely on assets or financial gifts from parents to get on in life then something is broken and society will force an adjustment at some point once the hand-me-downs dry up.

Most likely through the collapse of the property bubble once the market starts eating itself and restricts any new participants entering to prop it up because they're simply priced out. Reducing number of new buyers will inevitably lead to the bottom falling out and a collapse. Once that happens, those properties handed down might become a burden rather than an assest.

Most developed countries have a housing shortage that is getting worse so a property collapse seems very unlikely. And if there is a major correction you will still have a place to live loan free so in the majority of cases not a burden.

I'd agree with you that many aspects of society are broken but as most of them are never going to be fixed we can at least try to minimise the harm. Most countries have a huge problem with the availability of affordable and social housing and that at least is something government could address.

 

[Bert_]

I did say I wasn't an economist!

 

[Bert_]

Although, surely that is the fairest way? No free money by birthright

 

[Bert_]

Most developed countries have a housing shortage that is getting worse so a property collapse seems very unlikely. And if there is a major correction you will still have a place to live loan free so in the majority of cases not a burden.

I'd agree with you that many aspects of society are broken but as most of them are never going to be fixed we can at least try to minimise the harm. Most countries have a huge problem with the availability of affordable and social housing and that at least is something government could address.

There is the housing shortage and there is the cost of housing. Two sides of the same coin. If no one can afford to buy "entry level" properties (for want of a better phrase) then the chain collapses along with property prices.

If you inherit a house and live in it then none of that matters to be fair. Very few people do that though.

 

[Jippy]

It raises literal billions and almost 1% of the Uk government budget. It is not sod all.

There's no right to keep the family home. Its an inherently very emotive argument. Anyone having to pay inheritance tax on a family home in the UK is, assuming 2 parents, inheriting £1 million of free money that they have done literally nothing whatsoever to earn. For what its worth, this £1 million switch of assets to a single child would immediately put them in the 83rd percentile of wealth in the UK, assuming they literally had not a single penny to their name before. It seems this is not dissimilar to Australia. We're not talking about some squeezed middle here.

The loan they are raising to keep the family home in your situation would be, for instance £80,000 on a £1.2 million house.

As others have pointed out, the solution to the even richer abusing the system is not to abolish it entirely. It is to tighten it up, implement a wealth tax on top and not to just give up because some of the very wealthy get around it.

For a country that supposedly prides itself on rule of law, particularly around property, to say 'there's no right to keep a family home' is staggering.

The UK has one of the highest IHT rates in the world - most countries don't levy it. Nearly half of UK marriages end in divorce so presumably a similar proportion don't get the full £1m allowance anyway.

 

[Jippy]

Although, surely that is the fairest way? No free money by birthright

Except if you're the head of state.

 

[Bert_]

Except if you're the head of state.

I think it's just ingrained into our society. The fact we still have a monarchy that people just roll with says it all.

 

[K Stand Knut]

Out of interest, if IHT is abolished, who do we hand all of the wealth over to??

As an example, I or my parents die, do the government instantly become the owners or recipients of any wealth, finances or property and they take the proceeds of anything coming from that?

If that is people’s idea, I’d have to question the sense of that given that it would then just be the upper echelons of the banks and government who make the money instead. It would scream of corruption if you ask me

 

[Bert_]

Out of interest, if IHT is abolished, who do we hand all of the wealth over to??

As an example, I or my parents die, do the government instantly become the owners or recipients of any wealth, finances or property and they take the proceeds of anything coming from that?

If that is people’s idea, I’d have to question the sense of that given that it would then just be the upper echelons of the banks and government who make the money instead. It would scream of corruption if you ask me

It's taxation not seizure. If inheritance tax was abolished then you would get the assest/money but wouldn't pay any tax on it at all. Free wealth if you're lucky enough to have been born into the right familiy.