Inheritance Tax

It's already been taxed once when it was earnt (assuming legally!) in the first place (by the deceased, or the deceased predecessor), so why tax it again?

During my lifetime, I earn lots of money, pay tax on it, and save some of what's left.

When I die, the taxman wants another bite at my money. Money he's already had tax on.

Because he cannot reclaim the tax credit that comes with the dividends, he actually pays tax on _all_ his income, including that which would be covered by the personal allowance. The fact that Gordon Brown reduced the Tax Credit from 20% to 10% and abolished the ability to reclaim the tax credit is a factor in this situation.

But it isn't the deceased that's being taxed - it's the inheritor

Or, by the same argument: I provide goods and services to people and they pay me with money that they've already paid tax on. So why should I have to pay tax on it again? Why should the fact that I had to provide something in return cause my income to be taxed differently from someone who didn't do a stroke for theirs?

Fred

Sorry, I don't understand this response. Are you perhaps talking about income from investments rather than income from inheritance?

Fred

You only pay tax on your *net* income, not the entire sales value.

In message , Fred writes

You seem to be confusing the concepts of Income and of Assets. Are you saying that transfers of Assets should be taxed as though they were Income?

From the pov of benefit and taxation they are wholly equivalent since one can readily be converted to the other. As I understand it, the threshold applies to the value of the estate rather the type of the estate so it could well include liquid assets such as cash and bank accounts. So any distinction is purely academic

What do you think would happen if I asked my client to transfer some assets to me in payment for my work rather than cash? The IR would simply treat it as income and tax it accordingly.

I'm under no illusions that people will continue to be able to benefit from Daddy's fortune. I just get cross when people start pretending the issue is one of fairness rather than self interest - all part of the "you owe it to yourself" culture I suppose.

Fred

One unfair thing about IHT is that the wealthy don't usually pay it because they can afford IHT avoidance schemes.

there is a differential here, and the argument is always why are the ones that save penalised again with IHT. Well, if person A has 500k and spends it all, somewhere down the line it goes into the tax paying economy, if Person B has 500k and doesn't spend anything his money does nt go into the tax paying economy. Irgo the IR lose out on tax from Person Bs 500k, so they get it when he dies. Conclusion, spend enjoy and try your damndest not to pay tax personally on the money

In message , reven writes

If we can assume that the unspent dosh stays in some form of institution, then

a) if it stays in a bank then the bank will lend it, in fact £500k in a bank will generate about £4.5m of further 'money' which goes into the tax paying economy.

b) if it goes into some form of investment then that investment will use the money in such a way as to bring the dosh within the scope of taxation in the same way as spending it would. e.g. it may end up invested in equities enabling them to trade , or lent to companies or the government, and any returns on the investment will likely be taxed.

The only time your theory is true is if the dosh was held in bank notes under the bed.

"reven" wrote

Well, using that argument - when the *inheritor* then spends the money (which has now had IHT applied), (s)he shouldn't need to pay the taxes that Person A would have done if A had spent the money in their lifetime. Are you just talking about the VAT on the purchases, or the tax paid down the line by the supplier as well ... ??!

And even then there is no good reason to tax it when it's gifted by will to the heirs, because in due course those heirs will be spending it "into the tax paying economy".

Because to you it's income.

Because to them it's not income. It's a gift. Do you want all gifts to be taxed?

It's effectively the inheritor that is being taxed (the deceased being just that - deceased). Otherwise why would charitable legacies be exempted?

And why isn't a legacy or gift an income in the same way? Because it wasn't earned perhaps?

Of course, what possible justification could there be for treating unearned monies differently from earned monies?

Fred

How do you get income from an inheritance, unless you invest it?

His thinking is a bit screw^H^H^H^H^Hunconventional. He thinks of the inheritance itself as income, in the same way he would no doubt think of lottery winnings as income too. The phrase "income from inheritance" is ambiguous and here he's using the word in a different sense, not as the loot itself but as the act of inheriting, or the fact of being an heir.

Right, but that's not the issue I'm raising since we all agree that monies from investment are treated the same by the Revenue no matter what the origin.

What I'm saying is that from the point of view of the benefits to the recipient, receiving an inheritance is to all intents and purposes equivalent to receiving an income from earnings (say from an employee). Both result in an increase in your assets - indeed either could be in the form of cash, goods or property.

But of course from the Revenue's point of view the two are treated very differently - as indeed are gifts.

What I would like to hear is a reasoned argument that explains the more favourable treatment of unearned monies based on ideas of fairness and justice. I contend that no such arguments exist and that the matter is purely one of self interest despite the Tory propaganda machine banging on about unfair taxes.

Now whilst I'm all for precision of language, I would hate this discussion to simply be an exercise in drawing rather arbitrary distinctions between different types of monies (income Vs gifts Vs inheritances) based largely on historical and cultural factors. Can't we just focus on the bottom line here?

Can't anyone make the case?

Fred

It is completely different. When you go out to work, or run a business, you are creating economic benefit. You are doing your bit to make the world a better place as a result of your efforts. So the Inland Revenue take their share of this wealth you have created.

When you inherit something, you aren't creating wealth. It is simply a transfer payment of wealth from one person to another. The world is no richer or poorer as a result of this inheritance.