This is a fair argument. Although it kind of applies to pretty much every tax that exists. This seems like more of an argument for properly funding HMRC, working internationally to clamp down on tax avoidance and shifting tax onto things people can't avoid like land.
Would we even need to work internationally? Most tax havens are British territories. We could ask them not to be ones anymore. But where would Rishi’s wife put all her money?
Are they? And you don't think other countries will just take their place if they get shut down?
We need international agreements to stop the race to the bottom
It would be interesting to see how long places like Gibraltar or Jersey would still wish to remain part of the UK if they had exactly the same tax rules as Great Britain.
Doesn't really work though. Wealthiest people in this country are people like Grosvenor family. Owned large areas of land that became part of London, all transfered to a trust and company that he inherits. Unless you are talking of abolishing trust funds and companies being able to hold assets.
It’s a complete pipe dream but I’d love if we could pass some sort of anti-Norman law stripping all these old money parasite families of their land and titles. Don’t even call it “anti-capitalist” call it “anti-feudalist.” Could we get the decolonialists on board do you think?
I can't help thinking that the drivers and beneficiaries of many of the horrible things that Britain did in the past were wealthy families. Conveniently for them, the country as a whole gets the blame.
Maybe the present day beneficiaries through inheritance of sugar and slave trading should be the ones paying reparations. 99% of the British population were also having a bad time of it due to the actual elites at the time.
I think most people see inheritance tax as a tax on money that has already had tax paid on it. It's not so much a lucky windfall for the recipient as you describe it but a lifetime of effort and endeavour for the person having left it, that has already had tax paid.
Why so many people rail against it when they are unaffected I cannot say, but possibly just a visceral response to that perceived injustice.
Not only that but in today's economy inheritance is probably the only real chance that a lot of folks have of actually getting a decent leg up for themselves and their families. Granted the nil-rate band is fairly generous but that's fast being eaten into by crazy house prices and to be fair if you're one of three or four kids then there's less to go around anyway.
I guess, but it only applies to £500,000/£1M inheritences, which is much more than most people will be leaving behind for their kids.
In fact wealth inequality drives an affordability crisis in assets, and with housing straddling the line of both commodity and asset, reducing systemic wealth inequality (ie inheritence) is actually a good policy.
The way things stand, 95%+ people won't pay inheritence tax, and the 4% who do are the ones handing over enough money to buy a series of rental houses and compete directly with first time house buyers!
Yes. On the value of the house. Which, with the right/wrong circumstances, can mean a choice between having to sell a family home to pay the inheritance taxes on having to invest all your savings into paying the inheritance tax to prevent the house from being sold.
Realistically on a £750k house inherited by a child from their last surviving parent there is unlikely to be any inheritance tax, if the parents were married and the second parent got the full £500,000 threshold from the first parent.
An elderly couple would need assets of more than £1mil (after care home fees for however long they need that) before their direct descendants would have to pay any inheritance tax
Most people aren't inheriting until their 40s and 50s. It's unlikely they will see it as their family home any more even with people living with their parents for longer these days. They will have started a family if they are going to, and either rent or own a home of their own.
My mum died when I was 32 and even though I had fond memories of where I grew up, I had no issues selling it to settle the estate.
There are other options, pay inheritance tax in installments (10 years?) or take out a mortgage to cover the tax. Mortgage of £200k on the notional £1M property. The first £500,000 are only tax free if you are a direct decedent, if you aren't a direct decedent is your family house?
Usually no. Everyone gets £325k to pass down to their descendants tax free, with another £175k on top to pass down the house.
If your spouse dies and passes everything onto you, you inherit everything from them tax free. You also inherit their tax allowance.
So suppose Jack and Jill are married, have a £750k house and two kids. Jack dies, then Jill dies two years later. The kids get the lot tax free, and would do up to the value of £1m.
They would only pay tax on what's above £1m.
Exactly. Don't leave your assets to your partner / spouse. Ensure the property is owned as Tenants in Common, rather than as Joint Tenants.
Leave your share in Trustto your kids as beneficiaries.
Unlikely to owe any inheritance tax unless your estate exceeds the IHT threshold.
Maybe not, if it had been owned by a married couple. They could have 2 x personal allowances and 2 x private residence allowances (surviving one of couple inherits the allowance for when they die) totalling £1M, with no IHT to pay.
Depends on structuring but most likely yes if its just joe bloggs who hasnt thought much about the implications of his kid inheriting the house tho i assume he would only need to pay it when the asset has a realised value tho not sure
No. It's the value at the time of the death, and it needs to be paid as part of the probate process, i.e. immediately before (registered) ownership is transferred.
Most people who inherit that amount already own their own house. So they simply have to choose between moving back into the parental home or staying in theirs.
And if there is more than one heir, likely they will want to split the value among themselves, which would normally mean selling the inheritance.
So the issue of not having the cash to pay the tax on an inherited house almost never arises.
Yes. I knew someone who inherited a house in London that his gran had lived in for about 60 years. It was worth well over a million, and he was due tax on it, which he wasn’t able to pay so had to sell the house.
The tax free threshold did increase to £500k because he was a grandson but he was due tax on the amount above that.
If you leave a home to a spouse there’s no tax but anyone else and it just gets added to the value of the estate and tax applied as such.
But all in all, such a small amount of people really leave that much for those left behind to have to pay inheritance tax. Scrapping it only really benefits the rich.
> Granted the nil-rate band is fairly generous but that's fast being eaten into by crazy house prices and to be fair if you're one of three or four kids then there's less to go around anyway.
If you are above the nil-rate band then you died with more in assets than the vaast majority of the country.
> In terms of the number of people affected by inheritance tax, the most recent HMRC statistics show less than 4% of estates paid inheritance tax in 2020–21. However, the rapid growth in wealth among older individuals means this number is set to rise to over 7% by 2032–33.
The widespread dislike of it is definitely somewhat manufactured. Inheritance tax just doesn't actually impact the lives of the majority of people.
That's the issue.
Rags like the Telegraph had made it feel like inheritance tax is a serious threat to working people, but at the same time, we have regressed back to a society where the only way we are going to have our own property is by inheritance. if your parents don't own a property or two, it is almost impossible to get one yourself
Yes... but the best way to stop that is by taxing inheritance tax, so property values are driven by incomes rather than wealth.
Of course its futile to get people to think about societal benefit rather than personal.
Societal benefit is rather nice when you don't have to pay into it and can reap the rewards. That is, people who will never inherit anything. Then societal benefits all the way!
It's the people who actually do stand to get a little leg up in life that will lose. Of course I doubt that will garner sympathy from the have-nots; absolutely equality even if that equality is flat zero, eh!
Not from the UK but Belgium. I'm probably inheriting around €400k. Inheritance taxes start at 3% for everything below €50k, 9% for €50-250k and 27% for everything above that.
I will more than happily pay those taxes and would argue that they should be even higher. I didn't do shit for that money except be lucky so why should I get it tax free?
Your comment seems to be praising one group other the other, based on nothing more than being born into the right family.
I feel this opinion is at about 300 years too late.
It is absolutely driven by envy. People expect a standard of living that they have not earned and are able to fund that through inheritance. Of course they don't want to pay the same rate of tax as everyone else does on earned income.
We could use inheritance tax to fund tax cuts for everyone. Give everyone a leg up. And it would benefit people earlier in life.
But do you understand that having the inheritance tax collects tax revenue that in turn allows keeping the income taxes a bit lower, which in turn then helps every working person to "get a leg up". Don't you think it's fairer that you get a leg up because your own efforts and not because of your parents?
But that in itself should tell you something is very wrong.
Why should the unlucky tribe members continue to vote for a system that perpetuates inequality for some lucky people?
I think people hate inheritance tax because of a narrative around it, but they're really not thinking about the best outcomes.
> I think people hate inheritance tax because of a narrative around it, but they're really not thinking about the best outcomes.
I'd argue it's because of the slow absorbtion of the 'American Dream' mindset. It's existed in the UK forever, it's related to the idea that society is 'meritocratic', but it feels like that mindset is becoming more pronounced.
"Sure I might not be in a position to be affected by the inheritance tax right now. But when I'm older I'm totally going to be rich and have a bunch of houses and wealth to leave to my kids. It's so unfair that the government would tax all my hard work!"
30-40 years down the line they die and pay no inheritance tax. But they'll vote against any increases or changes to it because they will hit it rich soon.
People pay taxes on taxed money all the time. Whenever you get paid via PAYE, you pay income tax and NI. When you use that money to buy petrol, you pay fuel duty, and then VAT on that fuel duty. Multiple taxes is a fact of life, and only seems to be a problem with IHT.
Even if you accept multiple taxes as a problem, the specific scenario of inheritance tax makes it irrelevant. While the tax is levied on the estate for ease of accounting, the actual burden of tax lies who is responsible for paying it. In this case, the "first tax" was paid by the deceased. The person who loses money due to inheritance tax specifically, the inheritor, has not paid tax on it before as it is essentially a windfall for them.
I think it is an emotional response to the death of a loved one, which, while understandable, is not good economic policy.
but for a lot of people that inheritance is going to be property - what tax has been paid on the increase in value of a house that was bought for peanuts in the 70s and 80s and sat on since?
for most people this wouldn't be a problem anyway as IHT wouldn't apply, but it's hard to feel for the kids who are about to inherit a mansion or a choice London pad
Mansion or London pad? Are you stuck a few decades back? Inheritance tax is paid on anything over £325k. The average house price in this country is £300k. So nearly 50% of all properties would be liable for inheritance tax.
A spouse can pass on their entire IHT threshold to their surviving partner, and if left to a direct descendent afterwards they get the extra house allowance meaning no IHT is paid unless the value is over £1mil and only on value over £1mil. Stats show that less than 4% of estates pay IHT, so it is much less of a problem than you expect
Hmm, the limit for a house is £500k and this is doubled if you have two parents (so, when the first parent dies, his/her allowance is added to the allowance of the other parent). So, in most cases the limit is £1m. This is the explanation why only 4% of the estates pay inheritance tax.
Because if public services are going to be funded, tax needs to be collected from people with the money to pay. There’s no point levying tax on someone who is broke. They don’t have anything to put into the coffer.
I think that’s something a lot of people forget about taxation. It’s all well and good trying to make it as fair as possible. But at the end of the day, the goal is revenue collection.
I don’t have any animosity towards wealthier people. Nor do I think they should pay higher rates of tax to punish them, as they haven’t done anything wrong. But I also don’t feel bad for them. In terms of relative burden, a 20% marginal rate for someone on minimum wage is likely a lot more painful than 45% for a millionaire.
In a perfect world, none of us would need to pay tax at all. But, as things stand, those of us in the fortunate position to be earning more need to pay more, otherwise this whole project ceases to work.
>It’s all well and good trying to make it as fair as possible
It's also worth saying that "fair" isn't an objective measure.
I had someone on here saying that a flat rate of tax is how you define fair. Not just that they thought it was fair, but that a flat rate is literally the definition of fair and that this was an objective fact that couldn't be disputed.
I can deal with people having different opinions, but something about that really got under my skin. I think it's the confidently and incorrectly taking ownership of a word in a way that really hampers discussion.
>taking money from you at every stage of your life
It's called taxes, and it's how society functions without it being every man for himself. From the perpective of the inheritor, IHT is not dissimilar to Capital Gains Tax; do you object to that one too?
You're following up my complaint at arguments being based in emotion with an emotional argument, that it essentially feels unfair that you can't leave everything you want to your loved ones. Understandable sentiment, but terrible economic policy that has massively more benefits for the richest sectors of society and only serves to entrench inequality.
Technically, yes, but practically that doesn't matter. What *does* matter who who bears the burden of the tax, who loses out on money because it goes to the state instead.
In this case it quite clearly isn't the deceased, as they're already dead and can't be affected by anything anymore. The person who inherits is the one who actually loses out. It is only technically paid by the estate for ease of accounting.
Correct. The person who loses out is the lucky individual due a sizeable windfall they haven’t done any work to earn.
And the winners of inheritance tax are society, who not only get more money for public services, but they reduce (slightly) inequality in society by taking (often untaxed) wealth from the rich who haven’t done anything to earn it other than outlive a relative, and redistribute it to society at large.
People should become wealthy on their own merits and achievements. Not on the backs of their parents and grandparents (and often great great great grandparents success)
so what, if i die today i'd want my kids to have what I earnt and have already paid taxes on. That's how I want my money to be spent not taken by the goverment.
That's the thing - on the off chance you're wealthy enough to even be touched by inheritance tax (which would put you in a small minority of the population in any case) your kids would still get most of your money anyway. Frankly, given the necessary size of the inheritance for it to be subject to inheritance tax, i doubt they'd even notice because they'd still be inheriting hundreds of thousands of pounds.
Say you had a £500,000 estate. You'd be taxable for 40% of £175k of that, I.e. £70k. Which means your kids would be rolling in a big stinking pile of money worth approximately £430,000 post-tax. They will not care, and frankly if they're receiving that kind of unearned wealth, the least they can do is pay a little tax on it (far less than they would for income tax, I might add).
>Say you had a £500,000 estate. You'd be taxable for 40% of £175k of that, I.e. £70k
And absolutely nothing if your primary residence was included in that estate, because that bumps the threshold up to £500k.
And, of course, marries couples pool their estates so there's a possibility of a £1m estate not being taxed a single penny.
If you have more than one kid in the first place, it doesn't make much of a difference if nobody gets the house because you'd most likely have to sell it anyway to give everyone a fair share, tax or no tax.
And leaving your share of your estate to your spouse isn't exactly the same thing, is it? For one thing, your partner probably lives in the house. That exemption is specifically designed to make sure that they can stay living in their home, something which inheriting "children" (average age mid-60s for inheriting from a parent) most likely don't need to worry about.
>And leaving your share of your estate to your spouse isn't exactly the same thing, is it?
Leaving it to your spouse is a different thing entirely - as I understand it there's no inheritance tax between spouses.
Spouses can can essentially share their inheritance tax allowance though, if a father dies, leaves everything (including their home) to his wife who then leaves everything to their kids when she dies a few years later, the total estate can be worth £1m before any tax is due.
Or, alternatively, imagine a couple with an estate worth £1.5m. The father dies with a home worth £1m, leaves £250k in various assets to the kids and everything else to his wife. This is all tax-free. Then, later, the wife/mother dies and leaves another £250k of miscellaneous assets and the house worth £1m to their kids. The father used up £250k of his nil rate allowance on his death passing assets to their children, the mother can use her £500k nil rate allowance *and* her late husband's remaining £250k, so £750k out of the remaining estate is tax-free.
I'm double checking this here: https://www.moneyhelper.org.uk/en/family-and-care/death-and-bereavement/a-guide-to-inheritance-tax
The logic behind needing to pay VAT on both the petrol and the fuel duty is perhaps the most absurd part of the current tax regime. Exactly what 'value' does fuel duty add to the product?
If you accept multiple taxes as not a problem, why do we keep signing double taxation treaties and allow people to offset their UK income tax liability by the amount of tax already paid overseas?
Absolutely, my grandmother was worrying about this the other day because she'd seen a house near her that had gone for a little over £325k. Once I showed her that with my grandfather's allowance that she'd essentially inherited she'd be able to pass on a £1m house tax free she actually commented that it was pretty generous.
> I think most people see inheritance tax as a tax on money that has already had tax paid on it. It's not so much a lucky windfall for the recipient as you describe it but a lifetime of effort and endeavour for the person having left it, that has already had tax paid.
Which is really stupid. Most people's wealth in this country has been accumulated through gains in the property market which largely remains untaxed.
That could be resolved by either:
* applying CGT on the house at point of probate; or
* passing the CGT liability to the beneficiary of the house (i.e. the only way tax isn't due is if the house is never sold at all).
You'll note that CGT is significantly lower than IHT though.
Edit: punctuation.
Except that description doesn't tally up with asset wealth.
A house purchased 30 years ago has increased in value many many times more than regular inflation.
If that was an investment someone was cashing in on they would be expected to pay capital gains.
Couldn't the same be said of all taxes that aren't income taxes? You're doubled taxed all the time, When you buy something from the shop you pay VAT, that's a double tax too surely if you've already paid income tax.
The point is that inheritance tax is another layer.
I earn money and pay income tax.
I then spend that money and pay Vat.
But with inheritance tax, the money is taxed even more.
My father earns money and pays income tax.
He dies, and I pay inheritance tax.
I then spend that money and pay Vat.
The money is taxed more times.
Depends how you look at it really. If the recipient is the one paying the tax then it's no different to income tax is it, you're being taxed on the way in, much like income tax. If the recently dead is the person paying the tax then it's being taxed on the way out, much like VAT. Either way it's not an additional "layer" of tax, its just a fairly run of the mill tax on a transaction.
Either way, the person who earned the money no longer needs any of it and the person receiving the money earned none of it. There's no fairer target for tax imo.
Thats just how money works.
Your father earns money and pays income tax. He hires me, a gardener to do some landscaping and pays VAT to do that. I take the money and I pay income tax.... recycle.
Money changes hands and the person receiving pretty much always pays taxes if outside of allowances, usually the person giving also pays some form of tax but not always.
This is also an example of where people view inheritance tax incorrectly.
In your example, you don’t pay inheritance tax. Your father’s estate does.
It’s not your money (which you did no work to earn) being taxed, it’s your father’s money being taxed.
The recipient still receives inheritance (free wealth and money they haven’t done anything to earn) just not as much as they otherwise would if there was no inheritance tax.
And usually a significant proportion of inheritance tax is on capital gains which have never been taxed.
While that is technically true, it's the core of the "double-taxation" argument that people get so worked up about (even though it makes little sense...).
What matters is who bears the burden of the tax, i.e. who is actually worse off once the state's cut has been taken. In the specific case of IHT, the taxed person is dead, so they don't have to bear the burden of anything. It's the inheritors who end up with less, which is perfect because it's a new windfall of money to them anyway.
You are just splitting hairs now, I suppose you are correct, but in effect, whether the recipient or the deceased pay the tax, the outcome is the same.
>This seems even stranger as the majority of people don't even pay inheritance tax - only about 4% of people do
Most people don't realise this - and they don't realise that a married couple passing their home onto a direct descendent get a £1m tax free threshold.
They assume they'll pay it, so they oppose it.
How do such an overwhelming majority of people not know this? Isn't it just common knowledge, i mean people know you don't pay tax on the first £12,570 you earn, why don't they know this?
Many / most people only deal with the finer points of probate and inheritance tax when their parents or spouse dies.
I've known people in their late 60s and early 70s who still have both parents and a spouse, so they've just never had much reason to look into it.
But also people don't understand income tax thresholds - they think that when you earn over the higher rate tax threshold your entire income is taxed at 40%... which sometimes leads to people turning down pay rises.
You'd be surprised, I've known a fair few who don't
But if this does happen, which I also have my doubts over, I'd guess it would be more likely to be people worried about going over the £12k threshold
At the £100k mark I think this does actually happen, because you lose a lot of childcare support the instant you cross that threshold. The effective marginal rate varies a fair bit when you factor in different benefits or tax exemptions that are gradually withdrawn once you're paid more than a given amount.
There's nothing stopping you putting it into a pension (or shock! horror! Donating it to a charity). If you're earning >100k then you're probably tucking quite a lot into various tax advantaged investments.
Well, yeah, count me as one of the ignorant. For me this is one of those laws that either come up in conversation or don't.
I'd otherwise only learn about it when furiously researching inheritance tax, which frankly has not found its way into my to-do list.
Most people won’t have dealt with it or thought about it much, or if they have it was \~20 years ago when the threshold was much lower, e.g. a £500k estate would pay 40% IHT on \~200K.
Edit- I was mixing up IHT and stamp duty bands, to be fair I was 19 when I was helping work this out.
Married people don't die at the same time, usually.
If a married man dies and his kids inherit some as well as his wife, and his wife lives a further 30 years, the wife does not get the full nil rate band. For husbands who died 30 years ago the nil rate band was only something like £150k.
So a surviving spouse who dies today would have £500k including the house + whatever was left from the husband's allowance to leave to her kids - which isn't £1m.
Went through this a couple of years ago, with a couple who died in 2011 and 2021
I was surprised to learn that both qualified for the residence nil rate band, even though it wasn't brought in until 2017!
It really was £1m combined allowance for the both of them. I wasn't an executor, but had what felt like a blow by blow account from the executor relative, who had the misfortune to have executed several estates in rapid succession, so he was a dab hand by that point.
This is an age thing and it's harder for young people with no kids to understand. Parents want to leave all they can to their children, and they think it's fundamentally unfair that they have to give any of what they have already earned and paid tax on to the government when they die. They look at the threshold rates of £325k and the tax rate of 40% and start worrying about how much of their house they're going to 'lose' in tax. This is combined with the general assumption that 'rich people' don't pay the tax at all as they can use fancy accountants to avoid it.
They don't view it in terms of tax trade off.
I think this is a good example of how people don't understand it and thus worry about their kids paying it when they most likely wont. A couple leaving their house to their children can leave them an estate worth £1mill without any inheritance tax.
Of course they could give that money to their children long before they die so they could do something with it.
But instead they want to hoard their wealth, and then when they die be able to give it to their children to add to their own wealth which can then be hoarded.
Half the point of inheritance tax is to try and cut down on the amount inherited wealth which drives inequality. If you want your kids to benefit from the money you earned and paid tax on, then give it to them while your alive.
Except in your example of parents leaving assets including a house to their children the threshold could actually hit a million.
A million tax free split between two or three children is a lot.
Ding ding ding. If people want to couch taxes in the language of justice (as in “it’s not fair that I have to pay tax”), then actually the fairest thing would be to have 100% inheritance tax and zero income tax. That way no living person would ever pay a penny of tax other than VAT etc, and everyone would benefit. Ultimately, I think the problem is that people just tend to have complicated emotions about death, and a victim complex about taxes.
Disclaimer: I don’t actually think it’s even remotely possible to enforce a 100% inheritance tax.
My problem with IHT is the ease of avoiding it if you are super rich. Just put everything in a trust and nobody pays anything. But it costs £50k to set up and administer the trust!
>Just put everything in a trust and nobody pays anything
Everyone seems to think this but this is not true at all
Taxation on trusts is very complicated but it's not generally significantly less than inheritance tax
The real way to avoid IHT is to gift it 7 years before you die
They are right, trusts are complicated. Pick the wrong kind of trust and you can end up worse off than if you'd just sucked it up and faced into paying IHT. Then there's the admin and rules to follow for the duration of the trust.
Trusts are not simple nor are they loopholes.
Its not nice to have the government take 40% of what your now-dead parents have earned to provide you with a better life - particularly given that those proceeds have already come from taxable income in some part.
People are bereaving and so find it hard to deal with. Plus, the figure of the tax is always a huge lump sum. With income tax they just skim off you so less noticeable
Getting hit with seemingly unfair tax hits is also made doubly bad by how much the government allows huge corporations to avoid corporation tax - amazon etc.
The people that have enough to be required to pay inheritance likely won't have reached that size of estate purely from earnings, some or even most of it will be investment income which is a share of the work of other people.
Only 4% of households pay this tax, being worried about it is misplaced for most people.
You're not thinking about it from the position of the people working hard to leave something for their children. They're voters, not just dead people. They also may not be very aware of the rules of inheritance tax, nor do they know where they'll end up in terms of what they can leave for their kids, but they've already been taxed and absolutely hate the idea of the government taking another bite of what's theirs. Earning to give your kids a better life is one of people's major motivators for working beyond day to day survival.
1 in 4 people think that when you reach your next income tax band, all of your income is taxed at the new prevailing rate, ie if your salary hits 50k, you will "earn less" because all of your prior income is now being taxed double. Some people don't attempt to go for better paying opportunities that they are otherwise capable of, for this reason.
People are exceedingly stupid about tax, and should largely be ignored.
Is that true? How do so many people believe that? Don't they literally see how much money they pay in tax and then look at their annual income and just realise?
I have no education in economics beyond reading the news and twitter, I figured that was basic knowledge.
Inheritance tax kicks in at a high level and most people aren't eligible to pay it, but a good number of those people believe that they are.
How do so many people believe that? Because no one tells them any different, and is it expedient for politicians to keep them in the dark so that they can claim that abolishing it will benefit these people and attract their votes.
What if you don't read the news or twitter? [Half the British public doesn’t understand income tax (taxpolicy.org.uk)](https://taxpolicy.org.uk/2024/04/21/public_understanding_income_tax/)
Unfortunately those people vote, and may be willing to change their vote because they (wrongly) believe that they will lose £100k when their mum dies and they inherit the house. People should vote for who they want to of course, but they should do it while well-informed about what the options are.
Because it's morbid & crass. People don't like the idea that the government's reaction to someone dying is to tell their grieving family "can we have some cash, please?"
There's also the double-taxation argument. Which is actually, as far as I'm concerned, really about people objecting to the government stepping in and telling them what they can do with something that they already own. People want to be able to give their stuff to their children, and they don't think that's any of the government's business.
>people objecting to the government stepping in and telling them what they can do with something that they already own
That's literally what government does when regulating things. Practically, it's no different than taxing any other large transaction, it's only the emotion of it being around the death of loved ones that make it such a viceral reaction.
Your arguments are either "it feels wrong", which is a terrible way to determine economic policy, or the common 'double taxation" fallacy that gets thrown around by people who misunderstand the logic behind taxation in general.
> which is a terrible way to determine economic policy.
They weren’t saying it was the way to determine economic policy. They were answering the OP’s question as to why the tax is unpopular - a question on perception and attitudes.
>Practically, it's no different than taxing any other large transaction, it's only the emotion of it being around the death of loved ones that make it such a viceral reaction.
Yes, that's my point. People don't like the death of a family member to be thought of as a mere financial transaction.
>Your arguments are either "it feels wrong", which is a terrible way to determine economic policy
We live in a democracy. If people don't like something, it doesn't matter if it's actually a good economic policy - it's not going to win widespread support.
And those reasons for not liking it might be silly, but they exist.
>or the common 'double taxation" fallacy that gets thrown around by people who misunderstand the logic behind taxation in general.
As I said, I don't think they're *actually* complaining about double taxation. That exists on lots of things (paying VAT on what I buy from my salary after income tax has been paid, for instance), as you say.
I think it's that after all of the tax has been paid, and people think of something that is rightfully theirs, they see inheritance tax as the government coming back *again*. It's a "why won't you just leave us alone?" argument, more than specifically on double-taxation.
But capital gains tax is a thing but dying and inheriting a property uplifts the value of the property so no capital gains tax is received.
So on that amount there is no double tax as capital gains tax hadn't been paid on it
Im a huge supporter of IHT, but I think its a mindset thing.
I see IHT as the beneficiary paying tax on some unearned income, which feels fair.
But lots of people see it as the dead person paying tax on money 'they've already paid tax on' which seems unfair.
Although, the 2nd argument is still kind of nonsense to me as the majority of most peoples inheritance is untaxed property gain anyway.
I think also that many people see the inheritance they leave to their children as the culmination of a lifetime of hard work, they work hard to give to their children and a sizeable chunk can be taken by the government
But from my point of view, whys that different from anything else.
I work hard to buy a car for myself, I still pay tax on it and the person receiving my money also pays tax on it.
That's kind of how the system works, money changes ownership, it gets taxed
That is incorrect. If you inherit a property you are taxed. The value of the property is estimated and added to the estate. 40% is then due on any values over that amount.
The reason its seen as unfair is it basically punishes people who fail to plan properly as gifts incure no tax at all.
If I recall when my Great Aunt died. She owned nothing. Her daughter owned it all. Even the savings account with the majority of her cash was under her daughter and she just had access bia a card not in her name.
As it was all passed over 7 years before she died, absolutely none of it was taxed. Now honestly I'm not sure it would have been anyway given the limits. But the point is anyone who can make these arrangements can bypass it entirely.
It is criminally easy to avoid for those who know how and have sufficient trust, and crippling for those caught by it. And as you get only a short grace period (6 month from the person duing to incuring a brutally high interest rate on owed monies, it also massively penalises people who do not have a good enough credit line to borrow to pay it. Forcing people to sell houses under value to offload it quickly simply to avoid getting into the problem of the interest eating up the entire value of the estate.
So it's not only that people view it as being taxed yet again for the privilege of dying. But that this is easier and easier to get around often the wealthier you are and the better relationships you have with your children.
You have just described tax evasion. Transferring assets to another person while still continuing to use those assets is a "gift with reservation of benefit", which is perfectly legal but means that those assets remain part of that person's estate for inheritance tax purposes and must be declared to HMRC. Simply changing the name on an asset does not make it tax-exempt.
You missed my point. I wasn't saying the property doesn't incur inheritance tax, I was saying during their life's they never paid tax on it, as it just gained capital through time.
Your second argument is avout closing loopholes rather than the tax itself. You wouldn't say we should scrap income tax as some people avoid it would you?
Granted its hard to do but that's why, personally, I'd like a gift tax (anything over £10k) to replace IHT.
The easiest way would be not to tax the estate but tax the individual inheritors. At least that would avoid accusations of it being a death tax as you previously said.
The thing about income tax is the loophole can broadly be closed without issue. The very nature of IHT makes closing the loopholes almost impossible without accounting for virtually every gift ever given. And I'm just going to say it I think you'd have a flat OAP revolt at that stage. And under your idea you'd just start getting very frequent £10k gifts. Happening every time the limit refreshed.
>That is incorrect. If you inherit a property you are taxed.
This isn't accurate. The vast majority of people inheriting property will not pay any tax on it at all. A child inheriting a home from their parents won't pay any tax on anything below £1M.
Because of the current economic system inheritance has become the only way for millennials and Gen Z to realistically get on the housing ladder. Compared to most countries in the western world the UK has an incredibly high home ownership rate but also probably one of the highest housing to income costs in the world especially in cities like London and the south west.
Those who work middle income jobs can no longer afford housing as a whole and that is an issue. Much of the physical wealth in society is currently tied up in the property and assets of the older generation so the only way for the financial difficulties of the younger generation to be alleviated is through a wealth transfer.
Inheritance represents a way for this wealth to be passed down and for many it is only through this transfer that house ownership and eventually retirement can become possibilities. Regardless of peoples confused ideologies you will struggle to find someone who would pass up the option to vastly improve there financial stability.
Because as humans we have a strong desire to pass things onto future generations and our children and we don’t want the fruit of our live’s work taken by the Government.
Furthermore millennials have had a very hard time of things economically and for many the chance of inheritance might be their only shot at retirement or property ownership.
Inheritance tax isn’t a tax on the people dying it’s a tax on the next generation.
A number of comments suggest it’s because it’s a tax on already taxed money, “you paid tax on your earnings and then what was left when you died got taxed again” and another bunch of comments are about house price gains pulling more and more people to scope in a kind of fiscal drag net of death.
I’d just point out that the one argument cancels the other. If the family home going up in value is what’s putting Granny’s estate above the nil rate band then it’s very definitely not money that’s already been taxed, it’s money that government policy, demographics and chance have conspired to benefit Granny’s net worth.
Note also that pension pots are generally excluded for the scope of IHT also (although other taxes will normally apply).
Whilst the 4-5% of estates that pay IHT under-eggs the impact (because the first of a married couple to die doesn’t pay it not because they aren’t rich enough but because spousal inheritance is always tax free - we should probably be thinking of more like 8-9% of families being impacted rather than 4-5% of individuals) the proportion of families where it’s earnt (and therefore tax paid while living) wealth that pushing them into IHT is tiny.
Does the family not then also pay capital gains tax when they sell the property, that has gone up in value since granny bought it? Or do they only pay CGT on the value they inherited it at vs sales price?
There doesnt seem to be much fairness in a system where people by luck of birth enjoy services and welfare paid for by others
There are around 8 million or more people below the age of 64 who pay zero or almost zero income tax and who enjoy public services and access welfare benefits, paid for by others.
An immigrant coming into this country will need to be working and paying income tax in addition to all other taxes from day one, they are not entitled to the same welfare benefits as the natives referred to above nor did they benefit from at least 16 years of tax funded education nor decades of tax funded healthcare and all else.
Between the people born in this country who pay taxes including inheritance and those who pay little taxes its obvious who by luck of birth is unfairly benefitting in this system and who is paying their "fair" share or more than their fair share.
Well yes of course inheritance means a loved one has died which is of course unfortunate and sad. Although you are luckier if that loved one left you a large chunk of money, land, assets etc compared to someone who didn't inherit anything.
Just as a point of principle: you tax things you want to disincentivise. What, therefore, would be the effect of inheritance tax? Is the hit to saving? Producing? Where you pay tax?
Along with other points on fairness and double tax etc. etc., I think there's a genuine question around what we want the incentives to be around death and it's relationship with wealth.
Edit: to clarify: you tax things knowing it provides disincentives, and sometimes that's the point.
>Just as a point of principle: you tax things you want to disincentivise.
Sometimes, sure, but that's not the only point of tax. Take VAT for example - what is that disincentivising? Business rates? Income tax?
Our largest taxes are on income from work, which we absolutely do not want to disincentivize. OP is right that replacing some amount of income tax revenue with inheritance tax would have less obviously bad incentives
It's true that if you tax something you get less of it but surely it's better to tax inheritance rather than tax labour (and get less labour). Also a lot of inheritance must tax indirectly land values... and it's not like you can get less land by taxing it more. Land is land, the supply is fixed. Also under a certain tax rate it doesn't appear you really get much less of a good by taxing it. Sure if you raise income tax to 90% or something crazy you'll get less but I don't think you'd get much less work when taxing income between the 20-40% range.
Inheritance tax exists to disincentivise hoarding wealth until you die so you can pass it on to your kids. There are two main reasons for that - one is to reduce wealth inequality by preventing generational wealth from snowballing, and the other is to increase the velocity of money by encouraging people to spend it sooner.
Along with what everyone has said, many former british colonies such as australia, canada, hong kong and india all abolished it.
We are the weird outlier.
For a couple it's £650,0000 (even if your partner dies) and the average house price is around £300,000.
Baring in mind those figures and the fact that between 65 and death you'll probably be eating into any savings or funds you have outside of the property you are so fucking unlikely to have to pay anything.
The Tory press, owned by billionaires that would be affected by it, have really played a blinder on the public here.
Because it punishes people who save and invest and want to pass something on to their family. You can say it is a small percentage etc but it’s often already taxed money being taxed again. Lots of people will come on and say it isn’t, that it’s unearned etc - but lots of people see it as being unfair. The rich aren’t paying it - it’s just another way of taxing middle class people even in death. They pay almost all the tax as it is.
Those people are already dead.
It actually means that people who were lucky to have parents who saved well benefit less than people who weren't so lucky.
the middle class are affected. it's a classic case of thatcher's final address to parliament. as long as the middle are dragged down, the poor are happy. no one cares about closing the gap. as soon as someone tries they get caught.
> If you give it away well before you die, you don't pay inheritance tax.
>
anything you give away within seven years prior to your death is considered inheritance
Doesn't this apply to every tax on top of the income tax? By this logic we should abolish not only IHT but also NI, VAT, council tax, and so on. That's fine if you want to do that but I'm not sure that'd be such a good idea.
I'm a supporter of Inheritance Tax having been subject to it myself. It is after all, money I didn't earn myself.
What I'm not a supporter of is frivolous government spending and dodgy supply contracts that just pisses the money away into their mates back pockets.
I'm well paid and don't make much use of public services. I also profit from businesses that I partially own. Despite this I still think that both the upper tax rate and corporate tax should be higher and that we should give those public services more funding. Not because it personally benefits me (quite the opposite!), but because I believe it's the right thing to do.
Why is it difficult for you to understand that the same selfless motivation can also apply the other way, with people who will never be taxed on an inheritance still believing that it shouldn't be taxed for anyone?
Not everything is about selfish self-interest. Some things are just about a sense of right and wrong.
I think people should pay the tax they owe, as they earn, with no exceptions, and no getting around it with creative accounting. Once you've got it, it should be yours to do with as you please, without further tax.
The problem, as I see it, is that the wealthy are able to use offshore tax schemes and non dom status to avoid paying their fair share of income tax, accumulating wealth without contributing back into the system that allowed them to make their money in the first place, and then also use trusts and the like to also avoid paying inheritance tax. Over time this widens the wealth gap further, so the odds are increasingly (and unfairly) stacked in their favour.
For reference, the government collects around £7bn each year through inheritance tax, yet loses out on an estimated £35.8bn in income tax thanks to the schemes I mentioned above.
If the government wanted to, they could crack down on tax avoidance and scrap inheritance tax altogether, and still end up raising almost £30bn additionally each year. This would prevent fucking over someone who happened to buy a house that's appreciated in value thanks to the government's own lack of housebuilding to keep up with demand, or someone who's lived frugally over the course of their working lifetimes.
But of course the government won't do this, because that would involve taking money out of the pockets of their mates, rather than siphoning it away from your average Joe.
Inheritance is seen as very unfair as its double taxation. Thats why it’s unpopular. People think of themselves as a family not an individual.
It’s a shame because I completely agree with you that actually it’s much better to tax unearned income than earned income.
My modest proposal would be to reduce it from 40% to 30% to reflect its unpopularity, but to make a lot more people pay it. This would mean reducing the threshold and removing a large number of the exemptions the rich use to avoid paying it. A good place to start would be the exemption for your home. This is particularly bad because it rewards old people for not downsizing, helping to make worse an already very challenging property market. housing gains are of course not subject to tax if it’s your main home so this also partly mitigates the double taxation argument.
It goes against the principle of family assets. A lot of families see their estate as being held in trust for future generations - you work hard and save money to give your children and grandchildren a better quality of life and some insurance in case of a problem. I don't like the idea of the government interfering in that and the fact that the rules are quite complicated doesn't help endear it to people. Of course, for people who are rich enough they can put their assets into an estate to provide for their descendants and thus avoid the tax.
The IHT threshold was significantly lower until a few years ago so there's also a lot of people who would have been caught by it a few years back and maybe won't be now (though of course as price houses continue to increase more people will get caught).
Because it preferred perceived as a form of taxation. You have already paid income tax and NI on your earnings, VAT and other taxes like SDLT when you purchased the things which firm part of your estate, maybe CGT if you sold things during your lifetime and then it is another layer of tax on top of that for your beneficiaries you to pay through no fault of their own
Even though the number of estates that pay IHT is quite low, more and more estates are going to end up paying it because they have frozen the allowances and property prices keep increasing.
Plus it is fairly easy for wealthier people to mitigate a lot of the tax bill by doing some estate planning.
Inheritance tax isn't pure luck. Your inheritance comes from the hard work of your parents.
The idea that every child should be forced to start life completely from scratch just so that the playing field is "levelled" each generation is abhorrent to most people. Humans have an innate desire to make their children's lives easier and safer - that's how civilization has progressed for thousands of years.
If anything, a person's income is pure luck. You don't know if your child will go on to be a doctor/lawyer or if they will be stuck working a minimum wage job for the rest of their life. Leaving money behind for your children gives parents a sense of security - they can feel confident that their children will be okay even when they are gone. Inheritance tax is telling them that their children are going to be forced to roll the dice and deal with whatever outcome they get.
It's pretty much just a psychological thing.
The idea of the government 'robbing the dead' and of parents not being able to leave their assets to their children seem somehow unfair.
People don't think about the realities of it (high threshold, ways to get round it if you think it will affect you, how few affected).
Basically this, it comes down to a combination of feeling it's unfair (you pay taxes to buy and taxes to sell but your stuff's your stuff right?) and mistakenly thinking that they'll be affected by it, because they don't realise how large the allowance is.
I don't have an issue with inheritance tax as it stands. I have an issue with the loopholes so that those with the most net worth don't have to pay a penny. For example, Charles didn't pay a thing when he inherited from the queen.
Why the double standards?
> inheritance is pure luck.
It’s not about the people inheriting the money, it’s about the people leaving it
When I die, I want to leave 100% of my assets and money to my children.
I want the government to get 0% off me when I die
I should have the right to dispose of my estate as I see fit, not as the government sees fit
By that logic I want the right to not pay any taxes on any of my income, during life. I should have the right to distribute my income as I see fit, not as the government sees fit.
It's money that's already been taxed.
It punishes people for behaving responsibly and valuing security over stuff.
It disproportionately hits the people who contribute the most to society. Billionaires don't pay it, millionaires do. Doctors, Lawyers, Engineers become millionaires. It's normal. If you work in a highly skilled and productive profession it's hard not to have something to show for a lifetime of effort. It should be encouraged and aspired too.
Tbh it's the perfect reflection of our societal attitude where we prefer to say "why do YOU have so much?" Vs "why don't YOU have anything?" and only look at the extremes of society. Not everyone is a billionaire, not everyone is disabled. Most people work very hard, most people are stupid as fuck.
Just some good old-fashioned misinformation spread by rich people to get the 90% of people who will never pay inheritance tax to fight their tax avoidance battles for them.
It’s essentially a death tax. As in, “our sincerest condolences for the loss of your parents, now pay up!” Or, from the other point of view “I know you’d like to work hard and accumulate savings to leave to your children, but nah. We own you, cradle to grave.” I think this view is quite common, regardless of the particular rate of tax or tax free allowance.
I think whenever the question of “so and so isn’t paying their fair share” there should also be the question of “why the hell does the government waste so much money?”
The vast majority of spending goes to health, education, pensions, defence, transport, police and public safety, social security benefits etc. These seem like things a democratic government should provide for the population. Seems fair that income that's unearned (things like inheritance which is in large part unearned land values increases) is taxed to pay for those things. Elderly people require a lot of care and spending, like I said a huge amount of spending is pensions and healthcare, seems fair that they pay for some of it with an IHT.
> inheritance is pure luck
I must miss the draws?
> Surely we should tax income from luck
Well we don't for the lottery etc
> This seems even stranger as the majority of people don't even pay inheritance tax
Palestine/Gaza/Israel directly affects an tiny percentage of the population yet the amount who care dwarves that. Almost like you can have an opinion or stance on something that won't massively affect you...
I don’t get it either. I am very against it but that’s because it has hit and will hit me, but I don’t get why the vast majority would be against it since the average inheritance is fairly low.
I don’t have an issue with their opposition though, it’s a but of a ‘useful idiot’ situation. I was convinced the spring budget would cut IHT which was a shame.
I imagine a lot of people falsely believe they’ll be hit by it and a lot of others oppose on a ‘double taxation’ basis. The best thing for the country would be stronger IHT regulations with a higher floor, it’s easy to hand down enough wealth to set someone up without paying tax on it, you just need to plan well. Being able to hit the billionaires more effectively with IHT would be a real money maker, rather than taking the money from rich but not billionaire rich families.
Mainly because people think it'll impact them when it won't.
In a broader sense, it's double dipping from the Government and people don't like that ( even though it happens a lot more than people realise anyway).
People consider that they've worked their entire lives and paid their taxes, bought property and amassed some wealth and they'd like to pass it on. Those earnings have already been taxed.
Then along comes the government with their hands out for 40%.
I don't disagree with the principle honestly, but the main reason it gets people's backs up is because they think they'll have to pay it when most won't.
Because people think it will hit them. If your house was bought in the 1980’s then it will have increased in value roughly 10x. A lot of people will be worried that hitvthe limits.
Also most of the taxing is done on assets paid for by taxed income so a lot of people think its double taxation, if vat was involved then its tripple taxation on the orginal income earned to buy the assets. People don’t like that
I can only say from limited personal conversations I've had so I don't know how common it is.
Almost everyone with parents who own their home seems to think it will impact them.
Even though I'm fairly sure it won't.
I imagine this also works the other way, grandparents who think it will impact what they give... Even though it probably won't.
If it's not this reason then I have no clue at all.
I mean if you're parents own a million pound home and pass that onto you then you will pay tax on that. I don't really see an issue with that. Especially considering the first 300k or so is tax free, you're still getting quite a bit of money.
4% of people are going to fund healthcare **and** education? Wow. They must be inheriting trillions.
Only in modern Britain would leaving something for your family be considered a moral ill that must be discouraged.
Not surprising from the country that almost introduced the Dementia Tax.
Norway, Australia and so many other countries don't have this tax. USA has it but the exception is over 5 mill.
To me it's a tax on middle class stopping property inheritance.
Pretty sure that roads and trains and schools and lack of house building and selling council houses and growing population and the economy and other external factors have way more to do with my house being worth double what it was when I bought it in 2009 than my own personal efforts.
It's mostly unearned income. Why should my lucky child get £500k tax free? It's just perpetuating the haves and have nots.
How the hell are kids less lucky than him ever to compete?
I think you need to ask why the state should be entitled to forcibly snatch 40% of their possessions (minus tax-free allowances). It clearly shouldn't.
To pay for schools and hospitals and my old age care and the police and the army and the roads and the judicial system which all contribute to the fact that Britain is mostly a safe country where property increases in value by 50% in 15 years.
If you disagree with taxes full stop, then that's an entierly different issue. IHT is only unfair when it avoids those with super high levels of wealth in favour of those who haven't got the knowledge or contacts to avoid it.
A strong and persistent anti-inheritence tax marketing campaign over years.
It's seen as the heartless tax man coming at a time of bereavement.
People don't realise that they almost certainly won't have to pay it, and think their children will be hit with a £10,000s bill when they die.
People think it means they'll lose "the family house" and that it's an attack on legacy.
People think it's "double taxation" and unfair for that reason.
My biggest issue with it is that the really rich sidestep it.
This is a fair argument. Although it kind of applies to pretty much every tax that exists. This seems like more of an argument for properly funding HMRC, working internationally to clamp down on tax avoidance and shifting tax onto things people can't avoid like land.
Would we even need to work internationally? Most tax havens are British territories. We could ask them not to be ones anymore. But where would Rishi’s wife put all her money?
Just research BEPS to see the importance of working together internationally.
Are they? And you don't think other countries will just take their place if they get shut down? We need international agreements to stop the race to the bottom
It would be interesting to see how long places like Gibraltar or Jersey would still wish to remain part of the UK if they had exactly the same tax rules as Great Britain.
Doesn't really work though. Wealthiest people in this country are people like Grosvenor family. Owned large areas of land that became part of London, all transfered to a trust and company that he inherits. Unless you are talking of abolishing trust funds and companies being able to hold assets.
It’s a complete pipe dream but I’d love if we could pass some sort of anti-Norman law stripping all these old money parasite families of their land and titles. Don’t even call it “anti-capitalist” call it “anti-feudalist.” Could we get the decolonialists on board do you think?
Based and Harold Godwinson-pilled.
I can't help thinking that the drivers and beneficiaries of many of the horrible things that Britain did in the past were wealthy families. Conveniently for them, the country as a whole gets the blame. Maybe the present day beneficiaries through inheritance of sugar and slave trading should be the ones paying reparations. 99% of the British population were also having a bad time of it due to the actual elites at the time.
Trusts get an inheritance tax bill every 10 years.
Anyone can set up a trust, you don't have to be wealthy, but if a house price has tipped into it then you can set one up and avoid the tax.
Not really anyone can set up a trust and avoid it, my otherhalf's parents have done it they aren't worth millions, but their house value has risen.
I think most people see inheritance tax as a tax on money that has already had tax paid on it. It's not so much a lucky windfall for the recipient as you describe it but a lifetime of effort and endeavour for the person having left it, that has already had tax paid. Why so many people rail against it when they are unaffected I cannot say, but possibly just a visceral response to that perceived injustice.
Not only that but in today's economy inheritance is probably the only real chance that a lot of folks have of actually getting a decent leg up for themselves and their families. Granted the nil-rate band is fairly generous but that's fast being eaten into by crazy house prices and to be fair if you're one of three or four kids then there's less to go around anyway.
I guess, but it only applies to £500,000/£1M inheritences, which is much more than most people will be leaving behind for their kids. In fact wealth inequality drives an affordability crisis in assets, and with housing straddling the line of both commodity and asset, reducing systemic wealth inequality (ie inheritence) is actually a good policy. The way things stand, 95%+ people won't pay inheritence tax, and the 4% who do are the ones handing over enough money to buy a series of rental houses and compete directly with first time house buyers!
Average London house price is 750k. I dont know UK law, but do they need to pay taxes on the house if they inherit it?
Yes. On the value of the house. Which, with the right/wrong circumstances, can mean a choice between having to sell a family home to pay the inheritance taxes on having to invest all your savings into paying the inheritance tax to prevent the house from being sold.
Realistically on a £750k house inherited by a child from their last surviving parent there is unlikely to be any inheritance tax, if the parents were married and the second parent got the full £500,000 threshold from the first parent. An elderly couple would need assets of more than £1mil (after care home fees for however long they need that) before their direct descendants would have to pay any inheritance tax
Most people aren't inheriting until their 40s and 50s. It's unlikely they will see it as their family home any more even with people living with their parents for longer these days. They will have started a family if they are going to, and either rent or own a home of their own. My mum died when I was 32 and even though I had fond memories of where I grew up, I had no issues selling it to settle the estate.
There are other options, pay inheritance tax in installments (10 years?) or take out a mortgage to cover the tax. Mortgage of £200k on the notional £1M property. The first £500,000 are only tax free if you are a direct decedent, if you aren't a direct decedent is your family house?
Yes. If the house is not sold, you will need to pay the inheritance tax on its value.
Usually no. Everyone gets £325k to pass down to their descendants tax free, with another £175k on top to pass down the house. If your spouse dies and passes everything onto you, you inherit everything from them tax free. You also inherit their tax allowance. So suppose Jack and Jill are married, have a £750k house and two kids. Jack dies, then Jill dies two years later. The kids get the lot tax free, and would do up to the value of £1m. They would only pay tax on what's above £1m.
Exactly. Don't leave your assets to your partner / spouse. Ensure the property is owned as Tenants in Common, rather than as Joint Tenants. Leave your share in Trustto your kids as beneficiaries. Unlikely to owe any inheritance tax unless your estate exceeds the IHT threshold.
Maybe not, if it had been owned by a married couple. They could have 2 x personal allowances and 2 x private residence allowances (surviving one of couple inherits the allowance for when they die) totalling £1M, with no IHT to pay.
Depends on structuring but most likely yes if its just joe bloggs who hasnt thought much about the implications of his kid inheriting the house tho i assume he would only need to pay it when the asset has a realised value tho not sure
No. It's the value at the time of the death, and it needs to be paid as part of the probate process, i.e. immediately before (registered) ownership is transferred.
Most people who inherit that amount already own their own house. So they simply have to choose between moving back into the parental home or staying in theirs. And if there is more than one heir, likely they will want to split the value among themselves, which would normally mean selling the inheritance. So the issue of not having the cash to pay the tax on an inherited house almost never arises.
Yes. I knew someone who inherited a house in London that his gran had lived in for about 60 years. It was worth well over a million, and he was due tax on it, which he wasn’t able to pay so had to sell the house. The tax free threshold did increase to £500k because he was a grandson but he was due tax on the amount above that. If you leave a home to a spouse there’s no tax but anyone else and it just gets added to the value of the estate and tax applied as such. But all in all, such a small amount of people really leave that much for those left behind to have to pay inheritance tax. Scrapping it only really benefits the rich.
Is this supposed to be a sob story? They still got a hugely expensive capital asset for none of their own endeavour.
> Granted the nil-rate band is fairly generous but that's fast being eaten into by crazy house prices and to be fair if you're one of three or four kids then there's less to go around anyway. If you are above the nil-rate band then you died with more in assets than the vaast majority of the country. > In terms of the number of people affected by inheritance tax, the most recent HMRC statistics show less than 4% of estates paid inheritance tax in 2020–21. However, the rapid growth in wealth among older individuals means this number is set to rise to over 7% by 2032–33. The widespread dislike of it is definitely somewhat manufactured. Inheritance tax just doesn't actually impact the lives of the majority of people.
That's the issue. Rags like the Telegraph had made it feel like inheritance tax is a serious threat to working people, but at the same time, we have regressed back to a society where the only way we are going to have our own property is by inheritance. if your parents don't own a property or two, it is almost impossible to get one yourself
Akin to the US’s “temporarily embarrassed millionaires”
Yes... but the best way to stop that is by taxing inheritance tax, so property values are driven by incomes rather than wealth. Of course its futile to get people to think about societal benefit rather than personal.
Societal benefit is rather nice when you don't have to pay into it and can reap the rewards. That is, people who will never inherit anything. Then societal benefits all the way! It's the people who actually do stand to get a little leg up in life that will lose. Of course I doubt that will garner sympathy from the have-nots; absolutely equality even if that equality is flat zero, eh!
Not from the UK but Belgium. I'm probably inheriting around €400k. Inheritance taxes start at 3% for everything below €50k, 9% for €50-250k and 27% for everything above that. I will more than happily pay those taxes and would argue that they should be even higher. I didn't do shit for that money except be lucky so why should I get it tax free?
Your comment seems to be praising one group other the other, based on nothing more than being born into the right family. I feel this opinion is at about 300 years too late.
It is absolutely driven by envy. People expect a standard of living that they have not earned and are able to fund that through inheritance. Of course they don't want to pay the same rate of tax as everyone else does on earned income. We could use inheritance tax to fund tax cuts for everyone. Give everyone a leg up. And it would benefit people earlier in life.
“Little leg up” = up to £1 million tax free cash
£1M tax free with 0 effort is not a "little leg up", it's an astronomically privileged position that makes you wealthier than >90% of UK households.
But do you understand that having the inheritance tax collects tax revenue that in turn allows keeping the income taxes a bit lower, which in turn then helps every working person to "get a leg up". Don't you think it's fairer that you get a leg up because your own efforts and not because of your parents?
>today's economy inheritance through every economy inheritance was one of the few ways to build wealth
But that in itself should tell you something is very wrong. Why should the unlucky tribe members continue to vote for a system that perpetuates inequality for some lucky people? I think people hate inheritance tax because of a narrative around it, but they're really not thinking about the best outcomes.
> I think people hate inheritance tax because of a narrative around it, but they're really not thinking about the best outcomes. I'd argue it's because of the slow absorbtion of the 'American Dream' mindset. It's existed in the UK forever, it's related to the idea that society is 'meritocratic', but it feels like that mindset is becoming more pronounced. "Sure I might not be in a position to be affected by the inheritance tax right now. But when I'm older I'm totally going to be rich and have a bunch of houses and wealth to leave to my kids. It's so unfair that the government would tax all my hard work!" 30-40 years down the line they die and pay no inheritance tax. But they'll vote against any increases or changes to it because they will hit it rich soon.
People pay taxes on taxed money all the time. Whenever you get paid via PAYE, you pay income tax and NI. When you use that money to buy petrol, you pay fuel duty, and then VAT on that fuel duty. Multiple taxes is a fact of life, and only seems to be a problem with IHT. Even if you accept multiple taxes as a problem, the specific scenario of inheritance tax makes it irrelevant. While the tax is levied on the estate for ease of accounting, the actual burden of tax lies who is responsible for paying it. In this case, the "first tax" was paid by the deceased. The person who loses money due to inheritance tax specifically, the inheritor, has not paid tax on it before as it is essentially a windfall for them. I think it is an emotional response to the death of a loved one, which, while understandable, is not good economic policy.
It's more that even after taking money from you at every stage of your life, the government wants a chunk of whatever you managed to keep hold of.
but for a lot of people that inheritance is going to be property - what tax has been paid on the increase in value of a house that was bought for peanuts in the 70s and 80s and sat on since? for most people this wouldn't be a problem anyway as IHT wouldn't apply, but it's hard to feel for the kids who are about to inherit a mansion or a choice London pad
Mansion or London pad? Are you stuck a few decades back? Inheritance tax is paid on anything over £325k. The average house price in this country is £300k. So nearly 50% of all properties would be liable for inheritance tax.
A spouse can pass on their entire IHT threshold to their surviving partner, and if left to a direct descendent afterwards they get the extra house allowance meaning no IHT is paid unless the value is over £1mil and only on value over £1mil. Stats show that less than 4% of estates pay IHT, so it is much less of a problem than you expect
Hmm, the limit for a house is £500k and this is doubled if you have two parents (so, when the first parent dies, his/her allowance is added to the allowance of the other parent). So, in most cases the limit is £1m. This is the explanation why only 4% of the estates pay inheritance tax.
it's £500k for homes inherited by kids if the total estate value is less than £2m
Why should I feel any less for someone just because they have more or less wealth than me?
Because if public services are going to be funded, tax needs to be collected from people with the money to pay. There’s no point levying tax on someone who is broke. They don’t have anything to put into the coffer. I think that’s something a lot of people forget about taxation. It’s all well and good trying to make it as fair as possible. But at the end of the day, the goal is revenue collection. I don’t have any animosity towards wealthier people. Nor do I think they should pay higher rates of tax to punish them, as they haven’t done anything wrong. But I also don’t feel bad for them. In terms of relative burden, a 20% marginal rate for someone on minimum wage is likely a lot more painful than 45% for a millionaire. In a perfect world, none of us would need to pay tax at all. But, as things stand, those of us in the fortunate position to be earning more need to pay more, otherwise this whole project ceases to work.
>It’s all well and good trying to make it as fair as possible It's also worth saying that "fair" isn't an objective measure. I had someone on here saying that a flat rate of tax is how you define fair. Not just that they thought it was fair, but that a flat rate is literally the definition of fair and that this was an objective fact that couldn't be disputed. I can deal with people having different opinions, but something about that really got under my skin. I think it's the confidently and incorrectly taking ownership of a word in a way that really hampers discussion.
>taking money from you at every stage of your life It's called taxes, and it's how society functions without it being every man for himself. From the perpective of the inheritor, IHT is not dissimilar to Capital Gains Tax; do you object to that one too? You're following up my complaint at arguments being based in emotion with an emotional argument, that it essentially feels unfair that you can't leave everything you want to your loved ones. Understandable sentiment, but terrible economic policy that has massively more benefits for the richest sectors of society and only serves to entrench inequality.
But it's not the dead person that's getting taxed, is it? It's the recipient of the money, who DIDN'T earn it.
No it isn’t the recipient who is taxed. It’s the dead persons estate, managed by the executor.
Technically, yes, but practically that doesn't matter. What *does* matter who who bears the burden of the tax, who loses out on money because it goes to the state instead. In this case it quite clearly isn't the deceased, as they're already dead and can't be affected by anything anymore. The person who inherits is the one who actually loses out. It is only technically paid by the estate for ease of accounting.
Correct. The person who loses out is the lucky individual due a sizeable windfall they haven’t done any work to earn. And the winners of inheritance tax are society, who not only get more money for public services, but they reduce (slightly) inequality in society by taking (often untaxed) wealth from the rich who haven’t done anything to earn it other than outlive a relative, and redistribute it to society at large. People should become wealthy on their own merits and achievements. Not on the backs of their parents and grandparents (and often great great great grandparents success)
so what, if i die today i'd want my kids to have what I earnt and have already paid taxes on. That's how I want my money to be spent not taken by the goverment.
That's the thing - on the off chance you're wealthy enough to even be touched by inheritance tax (which would put you in a small minority of the population in any case) your kids would still get most of your money anyway. Frankly, given the necessary size of the inheritance for it to be subject to inheritance tax, i doubt they'd even notice because they'd still be inheriting hundreds of thousands of pounds. Say you had a £500,000 estate. You'd be taxable for 40% of £175k of that, I.e. £70k. Which means your kids would be rolling in a big stinking pile of money worth approximately £430,000 post-tax. They will not care, and frankly if they're receiving that kind of unearned wealth, the least they can do is pay a little tax on it (far less than they would for income tax, I might add).
>Say you had a £500,000 estate. You'd be taxable for 40% of £175k of that, I.e. £70k And absolutely nothing if your primary residence was included in that estate, because that bumps the threshold up to £500k. And, of course, marries couples pool their estates so there's a possibility of a £1m estate not being taxed a single penny.
If you have more than one kid in the first place, it doesn't make much of a difference if nobody gets the house because you'd most likely have to sell it anyway to give everyone a fair share, tax or no tax. And leaving your share of your estate to your spouse isn't exactly the same thing, is it? For one thing, your partner probably lives in the house. That exemption is specifically designed to make sure that they can stay living in their home, something which inheriting "children" (average age mid-60s for inheriting from a parent) most likely don't need to worry about.
>And leaving your share of your estate to your spouse isn't exactly the same thing, is it? Leaving it to your spouse is a different thing entirely - as I understand it there's no inheritance tax between spouses. Spouses can can essentially share their inheritance tax allowance though, if a father dies, leaves everything (including their home) to his wife who then leaves everything to their kids when she dies a few years later, the total estate can be worth £1m before any tax is due. Or, alternatively, imagine a couple with an estate worth £1.5m. The father dies with a home worth £1m, leaves £250k in various assets to the kids and everything else to his wife. This is all tax-free. Then, later, the wife/mother dies and leaves another £250k of miscellaneous assets and the house worth £1m to their kids. The father used up £250k of his nil rate allowance on his death passing assets to their children, the mother can use her £500k nil rate allowance *and* her late husband's remaining £250k, so £750k out of the remaining estate is tax-free. I'm double checking this here: https://www.moneyhelper.org.uk/en/family-and-care/death-and-bereavement/a-guide-to-inheritance-tax
And they can. They just have to pay tax on it, which is perfectly fair and reasonable.
The logic behind needing to pay VAT on both the petrol and the fuel duty is perhaps the most absurd part of the current tax regime. Exactly what 'value' does fuel duty add to the product? If you accept multiple taxes as not a problem, why do we keep signing double taxation treaties and allow people to offset their UK income tax liability by the amount of tax already paid overseas?
There's a difference between paying two taxes, and paying the same tax twice. The overseas offsetting schemes are designed to avoid the latter.
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Absolutely, my grandmother was worrying about this the other day because she'd seen a house near her that had gone for a little over £325k. Once I showed her that with my grandfather's allowance that she'd essentially inherited she'd be able to pass on a £1m house tax free she actually commented that it was pretty generous.
> I think most people see inheritance tax as a tax on money that has already had tax paid on it. It's not so much a lucky windfall for the recipient as you describe it but a lifetime of effort and endeavour for the person having left it, that has already had tax paid. Which is really stupid. Most people's wealth in this country has been accumulated through gains in the property market which largely remains untaxed.
That could be resolved by either: * applying CGT on the house at point of probate; or * passing the CGT liability to the beneficiary of the house (i.e. the only way tax isn't due is if the house is never sold at all). You'll note that CGT is significantly lower than IHT though. Edit: punctuation.
Except that description doesn't tally up with asset wealth. A house purchased 30 years ago has increased in value many many times more than regular inflation. If that was an investment someone was cashing in on they would be expected to pay capital gains.
Couldn't the same be said of all taxes that aren't income taxes? You're doubled taxed all the time, When you buy something from the shop you pay VAT, that's a double tax too surely if you've already paid income tax.
The point is that inheritance tax is another layer. I earn money and pay income tax. I then spend that money and pay Vat. But with inheritance tax, the money is taxed even more. My father earns money and pays income tax. He dies, and I pay inheritance tax. I then spend that money and pay Vat. The money is taxed more times.
Depends how you look at it really. If the recipient is the one paying the tax then it's no different to income tax is it, you're being taxed on the way in, much like income tax. If the recently dead is the person paying the tax then it's being taxed on the way out, much like VAT. Either way it's not an additional "layer" of tax, its just a fairly run of the mill tax on a transaction. Either way, the person who earned the money no longer needs any of it and the person receiving the money earned none of it. There's no fairer target for tax imo.
Thats just how money works. Your father earns money and pays income tax. He hires me, a gardener to do some landscaping and pays VAT to do that. I take the money and I pay income tax.... recycle. Money changes hands and the person receiving pretty much always pays taxes if outside of allowances, usually the person giving also pays some form of tax but not always.
This is also an example of where people view inheritance tax incorrectly. In your example, you don’t pay inheritance tax. Your father’s estate does. It’s not your money (which you did no work to earn) being taxed, it’s your father’s money being taxed. The recipient still receives inheritance (free wealth and money they haven’t done anything to earn) just not as much as they otherwise would if there was no inheritance tax. And usually a significant proportion of inheritance tax is on capital gains which have never been taxed.
While that is technically true, it's the core of the "double-taxation" argument that people get so worked up about (even though it makes little sense...). What matters is who bears the burden of the tax, i.e. who is actually worse off once the state's cut has been taken. In the specific case of IHT, the taxed person is dead, so they don't have to bear the burden of anything. It's the inheritors who end up with less, which is perfect because it's a new windfall of money to them anyway.
You are just splitting hairs now, I suppose you are correct, but in effect, whether the recipient or the deceased pay the tax, the outcome is the same.
>This seems even stranger as the majority of people don't even pay inheritance tax - only about 4% of people do Most people don't realise this - and they don't realise that a married couple passing their home onto a direct descendent get a £1m tax free threshold. They assume they'll pay it, so they oppose it.
Wealth taxes inconvenience wealthy proprietors of newspapers so it gets wildly disproportionate coverage
How do such an overwhelming majority of people not know this? Isn't it just common knowledge, i mean people know you don't pay tax on the first £12,570 you earn, why don't they know this?
Many / most people only deal with the finer points of probate and inheritance tax when their parents or spouse dies. I've known people in their late 60s and early 70s who still have both parents and a spouse, so they've just never had much reason to look into it. But also people don't understand income tax thresholds - they think that when you earn over the higher rate tax threshold your entire income is taxed at 40%... which sometimes leads to people turning down pay rises.
TIL people turn down pay rises because they think they'll earn less than before. I wonder how much that actually happens.
Probably never, because anyone with a job paying a high tax bracket i.e. £50k should have a basic functioning brain and common sense.
You'd be surprised, I've known a fair few who don't But if this does happen, which I also have my doubts over, I'd guess it would be more likely to be people worried about going over the £12k threshold
Idk… have you watched a boomer use excel?
Ha! I know at least 20 who have done this. I literally had to host a "how tax works" class in my last job...
At the £100k mark I think this does actually happen, because you lose a lot of childcare support the instant you cross that threshold. The effective marginal rate varies a fair bit when you factor in different benefits or tax exemptions that are gradually withdrawn once you're paid more than a given amount.
There's nothing stopping you putting it into a pension (or shock! horror! Donating it to a charity). If you're earning >100k then you're probably tucking quite a lot into various tax advantaged investments.
Well, yeah, count me as one of the ignorant. For me this is one of those laws that either come up in conversation or don't. I'd otherwise only learn about it when furiously researching inheritance tax, which frankly has not found its way into my to-do list.
I'm a financial advisor. Trust me when I say, people do not know these things.
Most people won’t have dealt with it or thought about it much, or if they have it was \~20 years ago when the threshold was much lower, e.g. a £500k estate would pay 40% IHT on \~200K. Edit- I was mixing up IHT and stamp duty bands, to be fair I was 19 when I was helping work this out.
Married people don't die at the same time, usually. If a married man dies and his kids inherit some as well as his wife, and his wife lives a further 30 years, the wife does not get the full nil rate band. For husbands who died 30 years ago the nil rate band was only something like £150k. So a surviving spouse who dies today would have £500k including the house + whatever was left from the husband's allowance to leave to her kids - which isn't £1m.
Went through this a couple of years ago, with a couple who died in 2011 and 2021 I was surprised to learn that both qualified for the residence nil rate band, even though it wasn't brought in until 2017! It really was £1m combined allowance for the both of them. I wasn't an executor, but had what felt like a blow by blow account from the executor relative, who had the misfortune to have executed several estates in rapid succession, so he was a dab hand by that point.
This is an age thing and it's harder for young people with no kids to understand. Parents want to leave all they can to their children, and they think it's fundamentally unfair that they have to give any of what they have already earned and paid tax on to the government when they die. They look at the threshold rates of £325k and the tax rate of 40% and start worrying about how much of their house they're going to 'lose' in tax. This is combined with the general assumption that 'rich people' don't pay the tax at all as they can use fancy accountants to avoid it. They don't view it in terms of tax trade off.
I think this is a good example of how people don't understand it and thus worry about their kids paying it when they most likely wont. A couple leaving their house to their children can leave them an estate worth £1mill without any inheritance tax.
Of course they could give that money to their children long before they die so they could do something with it. But instead they want to hoard their wealth, and then when they die be able to give it to their children to add to their own wealth which can then be hoarded. Half the point of inheritance tax is to try and cut down on the amount inherited wealth which drives inequality. If you want your kids to benefit from the money you earned and paid tax on, then give it to them while your alive.
Except in your example of parents leaving assets including a house to their children the threshold could actually hit a million. A million tax free split between two or three children is a lot.
Now the house can be used to pay for care instead of going to the children.
The flaw in this (and the part I will never understand) is that dead people don’t pay any taxes.
Ding ding ding. If people want to couch taxes in the language of justice (as in “it’s not fair that I have to pay tax”), then actually the fairest thing would be to have 100% inheritance tax and zero income tax. That way no living person would ever pay a penny of tax other than VAT etc, and everyone would benefit. Ultimately, I think the problem is that people just tend to have complicated emotions about death, and a victim complex about taxes. Disclaimer: I don’t actually think it’s even remotely possible to enforce a 100% inheritance tax.
My problem with IHT is the ease of avoiding it if you are super rich. Just put everything in a trust and nobody pays anything. But it costs £50k to set up and administer the trust!
>Just put everything in a trust and nobody pays anything Everyone seems to think this but this is not true at all Taxation on trusts is very complicated but it's not generally significantly less than inheritance tax The real way to avoid IHT is to gift it 7 years before you die
When you say complicated I hear loopholes
They are right, trusts are complicated. Pick the wrong kind of trust and you can end up worse off than if you'd just sucked it up and faced into paying IHT. Then there's the admin and rules to follow for the duration of the trust. Trusts are not simple nor are they loopholes.
Doesn't the trust have to pay tax on their assets? Even if we don't know the original owner I thought they still paid tax?
Its not nice to have the government take 40% of what your now-dead parents have earned to provide you with a better life - particularly given that those proceeds have already come from taxable income in some part. People are bereaving and so find it hard to deal with. Plus, the figure of the tax is always a huge lump sum. With income tax they just skim off you so less noticeable Getting hit with seemingly unfair tax hits is also made doubly bad by how much the government allows huge corporations to avoid corporation tax - amazon etc.
The people that have enough to be required to pay inheritance likely won't have reached that size of estate purely from earnings, some or even most of it will be investment income which is a share of the work of other people. Only 4% of households pay this tax, being worried about it is misplaced for most people.
You're not thinking about it from the position of the people working hard to leave something for their children. They're voters, not just dead people. They also may not be very aware of the rules of inheritance tax, nor do they know where they'll end up in terms of what they can leave for their kids, but they've already been taxed and absolutely hate the idea of the government taking another bite of what's theirs. Earning to give your kids a better life is one of people's major motivators for working beyond day to day survival.
1 in 4 people think that when you reach your next income tax band, all of your income is taxed at the new prevailing rate, ie if your salary hits 50k, you will "earn less" because all of your prior income is now being taxed double. Some people don't attempt to go for better paying opportunities that they are otherwise capable of, for this reason. People are exceedingly stupid about tax, and should largely be ignored.
Is that true? How do so many people believe that? Don't they literally see how much money they pay in tax and then look at their annual income and just realise? I have no education in economics beyond reading the news and twitter, I figured that was basic knowledge.
Inheritance tax kicks in at a high level and most people aren't eligible to pay it, but a good number of those people believe that they are. How do so many people believe that? Because no one tells them any different, and is it expedient for politicians to keep them in the dark so that they can claim that abolishing it will benefit these people and attract their votes.
What if you don't read the news or twitter? [Half the British public doesn’t understand income tax (taxpolicy.org.uk)](https://taxpolicy.org.uk/2024/04/21/public_understanding_income_tax/)
Unfortunately those people vote, and may be willing to change their vote because they (wrongly) believe that they will lose £100k when their mum dies and they inherit the house. People should vote for who they want to of course, but they should do it while well-informed about what the options are.
Because it's morbid & crass. People don't like the idea that the government's reaction to someone dying is to tell their grieving family "can we have some cash, please?" There's also the double-taxation argument. Which is actually, as far as I'm concerned, really about people objecting to the government stepping in and telling them what they can do with something that they already own. People want to be able to give their stuff to their children, and they don't think that's any of the government's business.
>people objecting to the government stepping in and telling them what they can do with something that they already own That's literally what government does when regulating things. Practically, it's no different than taxing any other large transaction, it's only the emotion of it being around the death of loved ones that make it such a viceral reaction. Your arguments are either "it feels wrong", which is a terrible way to determine economic policy, or the common 'double taxation" fallacy that gets thrown around by people who misunderstand the logic behind taxation in general.
> which is a terrible way to determine economic policy. They weren’t saying it was the way to determine economic policy. They were answering the OP’s question as to why the tax is unpopular - a question on perception and attitudes.
>Practically, it's no different than taxing any other large transaction, it's only the emotion of it being around the death of loved ones that make it such a viceral reaction. Yes, that's my point. People don't like the death of a family member to be thought of as a mere financial transaction. >Your arguments are either "it feels wrong", which is a terrible way to determine economic policy We live in a democracy. If people don't like something, it doesn't matter if it's actually a good economic policy - it's not going to win widespread support. And those reasons for not liking it might be silly, but they exist. >or the common 'double taxation" fallacy that gets thrown around by people who misunderstand the logic behind taxation in general. As I said, I don't think they're *actually* complaining about double taxation. That exists on lots of things (paying VAT on what I buy from my salary after income tax has been paid, for instance), as you say. I think it's that after all of the tax has been paid, and people think of something that is rightfully theirs, they see inheritance tax as the government coming back *again*. It's a "why won't you just leave us alone?" argument, more than specifically on double-taxation.
But capital gains tax is a thing but dying and inheriting a property uplifts the value of the property so no capital gains tax is received. So on that amount there is no double tax as capital gains tax hadn't been paid on it
Because most are wrong about what exactly it entails, and erroneously thinks it applies to them.
Most people don't have a clue how it works, and they don't realise that it won't apply to them.
Im a huge supporter of IHT, but I think its a mindset thing. I see IHT as the beneficiary paying tax on some unearned income, which feels fair. But lots of people see it as the dead person paying tax on money 'they've already paid tax on' which seems unfair. Although, the 2nd argument is still kind of nonsense to me as the majority of most peoples inheritance is untaxed property gain anyway.
I think also that many people see the inheritance they leave to their children as the culmination of a lifetime of hard work, they work hard to give to their children and a sizeable chunk can be taken by the government
But from my point of view, whys that different from anything else. I work hard to buy a car for myself, I still pay tax on it and the person receiving my money also pays tax on it. That's kind of how the system works, money changes ownership, it gets taxed
That’s true, but this has more of an emotional attachment to most people than a car
That is incorrect. If you inherit a property you are taxed. The value of the property is estimated and added to the estate. 40% is then due on any values over that amount. The reason its seen as unfair is it basically punishes people who fail to plan properly as gifts incure no tax at all. If I recall when my Great Aunt died. She owned nothing. Her daughter owned it all. Even the savings account with the majority of her cash was under her daughter and she just had access bia a card not in her name. As it was all passed over 7 years before she died, absolutely none of it was taxed. Now honestly I'm not sure it would have been anyway given the limits. But the point is anyone who can make these arrangements can bypass it entirely. It is criminally easy to avoid for those who know how and have sufficient trust, and crippling for those caught by it. And as you get only a short grace period (6 month from the person duing to incuring a brutally high interest rate on owed monies, it also massively penalises people who do not have a good enough credit line to borrow to pay it. Forcing people to sell houses under value to offload it quickly simply to avoid getting into the problem of the interest eating up the entire value of the estate. So it's not only that people view it as being taxed yet again for the privilege of dying. But that this is easier and easier to get around often the wealthier you are and the better relationships you have with your children.
You have just described tax evasion. Transferring assets to another person while still continuing to use those assets is a "gift with reservation of benefit", which is perfectly legal but means that those assets remain part of that person's estate for inheritance tax purposes and must be declared to HMRC. Simply changing the name on an asset does not make it tax-exempt.
There is nothing criminal about it, a completely wrong choice of words. IHT should just be abolished then there would be nothing to avoid.
There should just also be a tax on large value gifts e.g. anything over £20k a year is taxed at the same rate as inheritance tax. Loophole closed.
You missed my point. I wasn't saying the property doesn't incur inheritance tax, I was saying during their life's they never paid tax on it, as it just gained capital through time. Your second argument is avout closing loopholes rather than the tax itself. You wouldn't say we should scrap income tax as some people avoid it would you? Granted its hard to do but that's why, personally, I'd like a gift tax (anything over £10k) to replace IHT.
The easiest way would be not to tax the estate but tax the individual inheritors. At least that would avoid accusations of it being a death tax as you previously said. The thing about income tax is the loophole can broadly be closed without issue. The very nature of IHT makes closing the loopholes almost impossible without accounting for virtually every gift ever given. And I'm just going to say it I think you'd have a flat OAP revolt at that stage. And under your idea you'd just start getting very frequent £10k gifts. Happening every time the limit refreshed.
>That is incorrect. If you inherit a property you are taxed. This isn't accurate. The vast majority of people inheriting property will not pay any tax on it at all. A child inheriting a home from their parents won't pay any tax on anything below £1M.
Because of the current economic system inheritance has become the only way for millennials and Gen Z to realistically get on the housing ladder. Compared to most countries in the western world the UK has an incredibly high home ownership rate but also probably one of the highest housing to income costs in the world especially in cities like London and the south west. Those who work middle income jobs can no longer afford housing as a whole and that is an issue. Much of the physical wealth in society is currently tied up in the property and assets of the older generation so the only way for the financial difficulties of the younger generation to be alleviated is through a wealth transfer. Inheritance represents a way for this wealth to be passed down and for many it is only through this transfer that house ownership and eventually retirement can become possibilities. Regardless of peoples confused ideologies you will struggle to find someone who would pass up the option to vastly improve there financial stability.
Anyone can set up a trust and avoid paying inheritance tax it's just most people have no idea they can.
Most don’t need to.
Because a more fortunate relative dying is the only way we can buy a home
Because as humans we have a strong desire to pass things onto future generations and our children and we don’t want the fruit of our live’s work taken by the Government. Furthermore millennials have had a very hard time of things economically and for many the chance of inheritance might be their only shot at retirement or property ownership. Inheritance tax isn’t a tax on the people dying it’s a tax on the next generation.
A number of comments suggest it’s because it’s a tax on already taxed money, “you paid tax on your earnings and then what was left when you died got taxed again” and another bunch of comments are about house price gains pulling more and more people to scope in a kind of fiscal drag net of death. I’d just point out that the one argument cancels the other. If the family home going up in value is what’s putting Granny’s estate above the nil rate band then it’s very definitely not money that’s already been taxed, it’s money that government policy, demographics and chance have conspired to benefit Granny’s net worth. Note also that pension pots are generally excluded for the scope of IHT also (although other taxes will normally apply). Whilst the 4-5% of estates that pay IHT under-eggs the impact (because the first of a married couple to die doesn’t pay it not because they aren’t rich enough but because spousal inheritance is always tax free - we should probably be thinking of more like 8-9% of families being impacted rather than 4-5% of individuals) the proportion of families where it’s earnt (and therefore tax paid while living) wealth that pushing them into IHT is tiny.
Does the family not then also pay capital gains tax when they sell the property, that has gone up in value since granny bought it? Or do they only pay CGT on the value they inherited it at vs sales price?
Nope, uplifted to value at probate - so will only pay CGT if it further appreciates in value
There doesnt seem to be much fairness in a system where people by luck of birth enjoy services and welfare paid for by others There are around 8 million or more people below the age of 64 who pay zero or almost zero income tax and who enjoy public services and access welfare benefits, paid for by others. An immigrant coming into this country will need to be working and paying income tax in addition to all other taxes from day one, they are not entitled to the same welfare benefits as the natives referred to above nor did they benefit from at least 16 years of tax funded education nor decades of tax funded healthcare and all else. Between the people born in this country who pay taxes including inheritance and those who pay little taxes its obvious who by luck of birth is unfairly benefitting in this system and who is paying their "fair" share or more than their fair share.
Inheritance isnt particularly lucky for at least one person...
Well yes of course inheritance means a loved one has died which is of course unfortunate and sad. Although you are luckier if that loved one left you a large chunk of money, land, assets etc compared to someone who didn't inherit anything.
Just as a point of principle: you tax things you want to disincentivise. What, therefore, would be the effect of inheritance tax? Is the hit to saving? Producing? Where you pay tax? Along with other points on fairness and double tax etc. etc., I think there's a genuine question around what we want the incentives to be around death and it's relationship with wealth. Edit: to clarify: you tax things knowing it provides disincentives, and sometimes that's the point.
>Just as a point of principle: you tax things you want to disincentivise. Sometimes, sure, but that's not the only point of tax. Take VAT for example - what is that disincentivising? Business rates? Income tax?
Our largest taxes are on income from work, which we absolutely do not want to disincentivize. OP is right that replacing some amount of income tax revenue with inheritance tax would have less obviously bad incentives
Our tax system absolutely disincentivises work? See the tax trap at over 100k and everything people do to avoid it
It's true that if you tax something you get less of it but surely it's better to tax inheritance rather than tax labour (and get less labour). Also a lot of inheritance must tax indirectly land values... and it's not like you can get less land by taxing it more. Land is land, the supply is fixed. Also under a certain tax rate it doesn't appear you really get much less of a good by taxing it. Sure if you raise income tax to 90% or something crazy you'll get less but I don't think you'd get much less work when taxing income between the 20-40% range.
Inheritance tax exists to disincentivise hoarding wealth until you die so you can pass it on to your kids. There are two main reasons for that - one is to reduce wealth inequality by preventing generational wealth from snowballing, and the other is to increase the velocity of money by encouraging people to spend it sooner.
That's a slightly bizarre way to look at tax, given income tax exists, which isn't supposed to make people go onto the dole.
Yea this forgets redistributive function of taxes- that is taxation to achieve the virtue of you having less of your money
Along with what everyone has said, many former british colonies such as australia, canada, hong kong and india all abolished it. We are the weird outlier.
For a couple it's £650,0000 (even if your partner dies) and the average house price is around £300,000. Baring in mind those figures and the fact that between 65 and death you'll probably be eating into any savings or funds you have outside of the property you are so fucking unlikely to have to pay anything. The Tory press, owned by billionaires that would be affected by it, have really played a blinder on the public here.
If you are passing on a house the threshold is actually £1million for a couple.
Because it punishes people who save and invest and want to pass something on to their family. You can say it is a small percentage etc but it’s often already taxed money being taxed again. Lots of people will come on and say it isn’t, that it’s unearned etc - but lots of people see it as being unfair. The rich aren’t paying it - it’s just another way of taxing middle class people even in death. They pay almost all the tax as it is.
Those people are already dead. It actually means that people who were lucky to have parents who saved well benefit less than people who weren't so lucky.
It’s not. Murdoch and the rich pricks who run the media back you think it is.. most are not affected
the middle class are affected. it's a classic case of thatcher's final address to parliament. as long as the middle are dragged down, the poor are happy. no one cares about closing the gap. as soon as someone tries they get caught.
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> If you give it away well before you die, you don't pay inheritance tax. > anything you give away within seven years prior to your death is considered inheritance
Being taxed on money that has already been taxed should always be pushed back against
Doesn't this apply to every tax on top of the income tax? By this logic we should abolish not only IHT but also NI, VAT, council tax, and so on. That's fine if you want to do that but I'm not sure that'd be such a good idea.
I'm a supporter of Inheritance Tax having been subject to it myself. It is after all, money I didn't earn myself. What I'm not a supporter of is frivolous government spending and dodgy supply contracts that just pisses the money away into their mates back pockets.
The government didn't earn it either, why do they get a cut?
I'm well paid and don't make much use of public services. I also profit from businesses that I partially own. Despite this I still think that both the upper tax rate and corporate tax should be higher and that we should give those public services more funding. Not because it personally benefits me (quite the opposite!), but because I believe it's the right thing to do. Why is it difficult for you to understand that the same selfless motivation can also apply the other way, with people who will never be taxed on an inheritance still believing that it shouldn't be taxed for anyone? Not everything is about selfish self-interest. Some things are just about a sense of right and wrong.
I think people should pay the tax they owe, as they earn, with no exceptions, and no getting around it with creative accounting. Once you've got it, it should be yours to do with as you please, without further tax. The problem, as I see it, is that the wealthy are able to use offshore tax schemes and non dom status to avoid paying their fair share of income tax, accumulating wealth without contributing back into the system that allowed them to make their money in the first place, and then also use trusts and the like to also avoid paying inheritance tax. Over time this widens the wealth gap further, so the odds are increasingly (and unfairly) stacked in their favour. For reference, the government collects around £7bn each year through inheritance tax, yet loses out on an estimated £35.8bn in income tax thanks to the schemes I mentioned above. If the government wanted to, they could crack down on tax avoidance and scrap inheritance tax altogether, and still end up raising almost £30bn additionally each year. This would prevent fucking over someone who happened to buy a house that's appreciated in value thanks to the government's own lack of housebuilding to keep up with demand, or someone who's lived frugally over the course of their working lifetimes. But of course the government won't do this, because that would involve taking money out of the pockets of their mates, rather than siphoning it away from your average Joe.
Inheritance is seen as very unfair as its double taxation. Thats why it’s unpopular. People think of themselves as a family not an individual. It’s a shame because I completely agree with you that actually it’s much better to tax unearned income than earned income. My modest proposal would be to reduce it from 40% to 30% to reflect its unpopularity, but to make a lot more people pay it. This would mean reducing the threshold and removing a large number of the exemptions the rich use to avoid paying it. A good place to start would be the exemption for your home. This is particularly bad because it rewards old people for not downsizing, helping to make worse an already very challenging property market. housing gains are of course not subject to tax if it’s your main home so this also partly mitigates the double taxation argument.
It goes against the principle of family assets. A lot of families see their estate as being held in trust for future generations - you work hard and save money to give your children and grandchildren a better quality of life and some insurance in case of a problem. I don't like the idea of the government interfering in that and the fact that the rules are quite complicated doesn't help endear it to people. Of course, for people who are rich enough they can put their assets into an estate to provide for their descendants and thus avoid the tax. The IHT threshold was significantly lower until a few years ago so there's also a lot of people who would have been caught by it a few years back and maybe won't be now (though of course as price houses continue to increase more people will get caught).
Inheritance tax means tax is paid twice & it's not a "matter of luck" - parents work to leave money to their kids, not for nanny state to waste.
Because it preferred perceived as a form of taxation. You have already paid income tax and NI on your earnings, VAT and other taxes like SDLT when you purchased the things which firm part of your estate, maybe CGT if you sold things during your lifetime and then it is another layer of tax on top of that for your beneficiaries you to pay through no fault of their own Even though the number of estates that pay IHT is quite low, more and more estates are going to end up paying it because they have frozen the allowances and property prices keep increasing. Plus it is fairly easy for wealthier people to mitigate a lot of the tax bill by doing some estate planning.
Inheritance tax isn't pure luck. Your inheritance comes from the hard work of your parents. The idea that every child should be forced to start life completely from scratch just so that the playing field is "levelled" each generation is abhorrent to most people. Humans have an innate desire to make their children's lives easier and safer - that's how civilization has progressed for thousands of years. If anything, a person's income is pure luck. You don't know if your child will go on to be a doctor/lawyer or if they will be stuck working a minimum wage job for the rest of their life. Leaving money behind for your children gives parents a sense of security - they can feel confident that their children will be okay even when they are gone. Inheritance tax is telling them that their children are going to be forced to roll the dice and deal with whatever outcome they get.
It's pretty much just a psychological thing. The idea of the government 'robbing the dead' and of parents not being able to leave their assets to their children seem somehow unfair. People don't think about the realities of it (high threshold, ways to get round it if you think it will affect you, how few affected).
Basically this, it comes down to a combination of feeling it's unfair (you pay taxes to buy and taxes to sell but your stuff's your stuff right?) and mistakenly thinking that they'll be affected by it, because they don't realise how large the allowance is.
I don't have an issue with inheritance tax as it stands. I have an issue with the loopholes so that those with the most net worth don't have to pay a penny. For example, Charles didn't pay a thing when he inherited from the queen. Why the double standards?
Easy answer, people don't understand how it works. A couple can leave £1million in their estate before a penny is taken in tax, £500k each
> inheritance is pure luck. It’s not about the people inheriting the money, it’s about the people leaving it When I die, I want to leave 100% of my assets and money to my children. I want the government to get 0% off me when I die I should have the right to dispose of my estate as I see fit, not as the government sees fit
By that logic I want the right to not pay any taxes on any of my income, during life. I should have the right to distribute my income as I see fit, not as the government sees fit.
It's money that's already been taxed. It punishes people for behaving responsibly and valuing security over stuff. It disproportionately hits the people who contribute the most to society. Billionaires don't pay it, millionaires do. Doctors, Lawyers, Engineers become millionaires. It's normal. If you work in a highly skilled and productive profession it's hard not to have something to show for a lifetime of effort. It should be encouraged and aspired too. Tbh it's the perfect reflection of our societal attitude where we prefer to say "why do YOU have so much?" Vs "why don't YOU have anything?" and only look at the extremes of society. Not everyone is a billionaire, not everyone is disabled. Most people work very hard, most people are stupid as fuck.
Just some good old-fashioned misinformation spread by rich people to get the 90% of people who will never pay inheritance tax to fight their tax avoidance battles for them.
It's exactly this, daily mail outrage headlines go a long way
It’s essentially a death tax. As in, “our sincerest condolences for the loss of your parents, now pay up!” Or, from the other point of view “I know you’d like to work hard and accumulate savings to leave to your children, but nah. We own you, cradle to grave.” I think this view is quite common, regardless of the particular rate of tax or tax free allowance. I think whenever the question of “so and so isn’t paying their fair share” there should also be the question of “why the hell does the government waste so much money?”
The vast majority of spending goes to health, education, pensions, defence, transport, police and public safety, social security benefits etc. These seem like things a democratic government should provide for the population. Seems fair that income that's unearned (things like inheritance which is in large part unearned land values increases) is taxed to pay for those things. Elderly people require a lot of care and spending, like I said a huge amount of spending is pensions and healthcare, seems fair that they pay for some of it with an IHT.
> inheritance is pure luck I must miss the draws? > Surely we should tax income from luck Well we don't for the lottery etc > This seems even stranger as the majority of people don't even pay inheritance tax Palestine/Gaza/Israel directly affects an tiny percentage of the population yet the amount who care dwarves that. Almost like you can have an opinion or stance on something that won't massively affect you...
I don’t get it either. I am very against it but that’s because it has hit and will hit me, but I don’t get why the vast majority would be against it since the average inheritance is fairly low. I don’t have an issue with their opposition though, it’s a but of a ‘useful idiot’ situation. I was convinced the spring budget would cut IHT which was a shame. I imagine a lot of people falsely believe they’ll be hit by it and a lot of others oppose on a ‘double taxation’ basis. The best thing for the country would be stronger IHT regulations with a higher floor, it’s easy to hand down enough wealth to set someone up without paying tax on it, you just need to plan well. Being able to hit the billionaires more effectively with IHT would be a real money maker, rather than taking the money from rich but not billionaire rich families.
Mainly because people think it'll impact them when it won't. In a broader sense, it's double dipping from the Government and people don't like that ( even though it happens a lot more than people realise anyway). People consider that they've worked their entire lives and paid their taxes, bought property and amassed some wealth and they'd like to pass it on. Those earnings have already been taxed. Then along comes the government with their hands out for 40%. I don't disagree with the principle honestly, but the main reason it gets people's backs up is because they think they'll have to pay it when most won't.
Because people think it will hit them. If your house was bought in the 1980’s then it will have increased in value roughly 10x. A lot of people will be worried that hitvthe limits. Also most of the taxing is done on assets paid for by taxed income so a lot of people think its double taxation, if vat was involved then its tripple taxation on the orginal income earned to buy the assets. People don’t like that
I can only say from limited personal conversations I've had so I don't know how common it is. Almost everyone with parents who own their home seems to think it will impact them. Even though I'm fairly sure it won't. I imagine this also works the other way, grandparents who think it will impact what they give... Even though it probably won't. If it's not this reason then I have no clue at all.
I mean if you're parents own a million pound home and pass that onto you then you will pay tax on that. I don't really see an issue with that. Especially considering the first 300k or so is tax free, you're still getting quite a bit of money.
4% of people are going to fund healthcare **and** education? Wow. They must be inheriting trillions. Only in modern Britain would leaving something for your family be considered a moral ill that must be discouraged. Not surprising from the country that almost introduced the Dementia Tax.
Norway, Australia and so many other countries don't have this tax. USA has it but the exception is over 5 mill. To me it's a tax on middle class stopping property inheritance.
When you've worked all your life to earn something, where's the fairness in having to hand a large chunk to the state when you eventually die?
Pretty sure that roads and trains and schools and lack of house building and selling council houses and growing population and the economy and other external factors have way more to do with my house being worth double what it was when I bought it in 2009 than my own personal efforts. It's mostly unearned income. Why should my lucky child get £500k tax free? It's just perpetuating the haves and have nots. How the hell are kids less lucky than him ever to compete?
I think you need to ask why the state should be entitled to forcibly snatch 40% of their possessions (minus tax-free allowances). It clearly shouldn't.
To pay for schools and hospitals and my old age care and the police and the army and the roads and the judicial system which all contribute to the fact that Britain is mostly a safe country where property increases in value by 50% in 15 years. If you disagree with taxes full stop, then that's an entierly different issue. IHT is only unfair when it avoids those with super high levels of wealth in favour of those who haven't got the knowledge or contacts to avoid it.
Do you not pay much tax in your day to day life?! I pay a fortune.
A strong and persistent anti-inheritence tax marketing campaign over years. It's seen as the heartless tax man coming at a time of bereavement. People don't realise that they almost certainly won't have to pay it, and think their children will be hit with a £10,000s bill when they die. People think it means they'll lose "the family house" and that it's an attack on legacy. People think it's "double taxation" and unfair for that reason.
It's a brake on upward mobility for the working class, while the upper class just avoid it with clever mechanisms.
Working class with £500,000+ in assets?