Inheritance tax too high or too low?

Former_MSE_Archna

Poll Title: Poll Started 19 September 2006: Inheritance tax too high or too low? If you're worth over £285,000 (including your home) when you die 40% of everything over that amount goes to the taxman (unless you've followed a loophole). Should this be higher to stop perpetuating inherited privilege keeping the rich rich and the poor poor. Or does it stop us helping our families by paying tax on hard earned, already taxed money? Three simple stark choices; which is closest to your view?

A. No inheritance tax. Hard earned cash should all be passed on
79.3% (2925 Votes)
C. Double it. It'll lead to a society based on merit not inheritance
12.6% (465 Votes)
B. Keep it as is. It's roughly the right balance at the moment
7.9% (294 Votes)

Total Votes: 3688

Dead_Eye_Jones

I always liked the idea that a parent should leave enough money for their children to do what they want, but not enough so that they can do nothing.

Maybe a solution such as being able to pass on the family home to a relative untaxed would be appriopriate - I hate those stories of people facing big IHT bills and are forced to sell up a home they lived in all their lives - it just somehow seems morally wrong. Else yep the threshold needs to go up.

digitaltoast

Wow - that's a scarily hight amount for "c:double it". I can almost hear the popping corks of the champagne socialists in Islington!

But I just noticed this:

MSE_Archna wrote:

Should this be higher to stop perpetuating inherited privilege keeping the rich rich and the poor poor.

Problem is, this is an age of fallacy: making the rich poorer doesn't make the poor richer.
It just means the rich emigrate and find loopholes, and the poor find new ways to !!!!!! the money away.

Dead_Eye_Jones wrote:

I hate those stories of people facing big IHT bills and are forced to sell up a home they lived in all their lives

To every pillock who comes along with a "but it's perfectly avoidable tax" story, I have the following antidote:
The father of my friend, a only child aged 23 at the time, died of Alzheimers. Just under a year later, her mother went to Spain on holiday. A balcony collapsed - she lost both parents within a year. No brother or sister - all she had left was the family home they had always lived in.
She had to sell it to pay the IHT.
Always someone comes out with a smart alec remark like "that's extremely unusual though."
What, two parents dying suddenly? I think they need to look at the road statistics before being so glib!

As I say, if it was called the more honest "Dying Tax", instead of the sinister current misnomer, I'm sure B and C wouldn't have been so high.

sandy_may

First time posting...very nervous!

I wanted to let you know what happened to us 9 years ago with regard to IHT and then you can decide if you think it is a fair tax.

We didn't have much money when we were growing up; 1 1966 rusty old banger patched up, threadbare carpets & mismatched cast off furniture, awful hand-me-down clothes, no holidays, freezing shabby unmodernised 1940's terraced house. My parents budgetted closely putting any surplus cash towards their old age.

In 1995 my mum died having only made her will the week before. It was ill thought out & hurriedly put together. She left everything to my dad, a tessa, a few small insurance policies, a couple of NSB bonds. He was too consumed with grief after her death to do anything about applying for probate so her money just sat there. Then in 1997 my father died suddenly and the nightmare began.

To begin with we had to apply for probate on mum before we could collect in any of her estate. Unfortunately all her estate went to my dad & counted as his estate. As we lived in London and he still owned his late mothers grotty terraced house also in London (he was an only child, too cut up about her recent death to sell) the property boom & mums estate pushed him into the IHT bracket.( we had to count the value of everything he owned, furniture, books, clothes etc. we were told by an incompetent solicitor that we should value his goods as per insurance value ie new for old. This is wrong; it should be valued as what you would get for it if you sold it on the date of death. if we had listened to him the IHT bill would have been even higher and lets face it the furniture, clothes etc were fit for the skip & nothing else) We could not get probate for dad until we had paid that IHT which amounted to £55,000. So basically you can't get your hands on the money until you have paid the tax due (they do allow you to delay payment of the portion of the tax due on property until after you have sold the houses but guess what, we couldn't sell until we had probate). So you have to take out a loan or remortgage etc to pay this tax before you can collect the money.(think of the interest!)

Having lost both parents, we were lucky (!) We used mums money which did not have any IHT due on it to just about pay off the bare minimum required to allow probate to be granted on dad. We then had to sell the houses which resulted in us having to pay Capital gains tax (the capital taxes office had spent so long quibbling over every single value eg of shares etc that it was now several months since dad's death & the house prices were still rising) The shares which we had had to pay IHT on based on value at date of death then crashed so for some eg BT we got nothing back when we came to cash them in now that we'd got probate.

So for a couple who'd not had any luxuries in life, who had worked hard to provide for an old age which they didn't live long enough to achieve, they had nothing to show for all this scrimping & saving, only the proceeds of the sale of 2 small unmodernised houses in London. Their entire savings were wiped out by IHT.

Dad had asked in his will for £10K to be left for each of his grandchildren on their 21st birthdays; there are 10 grandchildren and we cannot fulfil the terms of his will as there wasn't enough money left.

Had he been rich enough, he could have afforded an accountant to 'dodge' this tax. Instead he was thoroughly stung. Also most people would need to employ a solicitor at cripping rates to do the probate & IHT work for them so ones inheritance would have been even further eroded. We borrowed the Which Guide to Wills & Probate from the library and worked through it ourselves.

At the time of my father's death the IHT threshold was only £214K and many unsuspecting people were caught out due to property values. This is not a tax on the rich, it is a tax on the unsuspecting and I think at it's current level & in it's current form it is truly evil.

Well, that's it, I've had my say (sorry it was so long!) Rest assured, this family won't be stung again! We just spend our money now on having a nice life with our 4 children so there will nothing left for the tax man when we go!

Sandy May

digitaltoast

Argh! I just posted a long post thanking you for your post, and it never appeared! Anyway, thanks

sandy_may

You're very welcome.

I read your post after I'd submitted mine (total novice here, have no idea what I'm doing...spent a whole week plucking up the courage to write) but the story of your friend struck a chord & sadly it seems our experiences are by no means isolated cases.

Sandy May

Derek_A.

Just one point, because of the way house prices have risen,
this increase in the property was not earned,was it?
So what is the problem with giving some of this unearned income back to the state.
Come on play the game ,be fair.

roob_the_doob

Just a quick note to point out that, because the first 1/4 million are exempt from IHT, no-one who is affected by IHT can possibly have an estate worth less than 1/4 m after IHT. Whatever you may think about IHT, that's a fair chunk of cash to pass on to the next generation.

There will always be stories of people who struggle after the unexpected deaths of parents. But these happen even without IHT. The problem is more often to do with people's failure to make wills, or their failure to take account of IHT when doing so.

Another thing - the reason for IHT isn't so much to tax the rich, it's to prevent the rich getting richer, and richer, and richer...

Suppose I inherit a house, which I don't need. I can rent it out, and use the rent to pay the mortgage on another house. In, say, 15 years, I have another house. I now have the income from TWO houses, which will enable me to buy another house in, say 10 years. In the meantime, I've also paid off the mortgage on my primary residence, so I now own 4 houses outright.

Why is that fair? Why should I be able to accumulate wealth for no reason other than I happened to inherit a house? Replicated across the country, the end result would be more and more houses being owned by fewer and fewer people. I understand the arguments about people wanting to provide for their children (and incentives for people to save are good for the economy at large), but a balance has to be struck. IHT is the mechanism for providing that balance. It just doesn't work very well.

Ted_Bloke

going2die_rich wrote:

C - Double it!

A lot of the people dying off now haven't earned all the money they are leaving behind!

It's due to the property prices increasing so much that they have vast amounts of money to leave to their children.

Derek_A. wrote:

Just one point, because of the way house prices have risen,
this increase in the property was not earned,was it?
So what is the problem with giving some of this unearned income back to the state.
Come on play the game ,be fair.

This 'unearned' capital increase is illusory. Roughly speaking this increased amount still buys you the same house as before! Except if it's taxed it doesn't!
I see OTOH a lot of people seem to agree with me on the basic unfairness and objectionable character of this envy tax. But many of them have not liberated themselves yet from the envy tax mentality. They still propose in one way or other special tratment for housing, or engineering of thresholds etc. and other halfway houses, meaning if I may say so objecting to the tax only when it begins to hit them and their kind. Now none of these halfway houses are very workable or fair or justifiable as economics.
The only way out is outright abolition.
Thses issues of fairness etc. have been debated at length in the Discussion Time forum e.g..
Inheritance Tax and
Inheritance tax- What right does the state have to have such a tax.

Ted_Bloke

digitaltoast wrote:

To every pillock who comes along with a "but it's perfectly avoidable tax" story, I have the following antidote:...

You are right - if it's offered as friendly advice that you can do something about it, well OK. (Except it's not that easy really). But if it's offered against the people who are arguing against the tax, it is undermining the pro-IHT case.
And anyway why should we have to? I find having to pay expensive consultants, trust lawyers with their lawyers' paradises is almost as objectionable as paying the exchequer!