Inheritance Tax

I like IHT. It taxes the dead, which I like. It taxes only the thoughtless dead, because anyone with any regard for their dependants can wriggle out of it if they choose.

Your "main residence" exmption only applies to the occasional unfair situation when (say) a non-spousal dependant is left in (say) a £500k house. They have to sell the house to pay £80k or £200k tax.

But even in that extreme situation they have £300k left to buy another house, so where - in the grand scheme of things - is the problem?

There was an article ('I hereby bequeath my outstanding mortgage to...') in yesterday's (Saturday 26 Aug) FT on this area. Buried in the article is the suggestion that IHT be scrapped and use CGT in its place, keeping

- at at present - the main residence exempt from CGT

The whole article is available at:

I think it an even more unfair idea.

I can see no reason whatsoever that a person inheriting (say) 500k should have to pay tax if the inherited item is cash and no tax if the inherited item is a house. The idea is nuts.

It must be remembered that this view perputated by the media that peole have to sell *their* house to pay the tax is completely false. What they are doing is having to sell an item that they have inherited which just happens to be a house and which they had no prior material interest in before they inherited it.

In many cases the people inheriting, are not people starting out on the house buying ladder who can move into this inherited peoperty, they are usually middle aged people, established on the housing ladder with children who have left, or are looking to leave, home. And in any case, 285 thousand pounds is more than enough to buy a basic house in all regions of the UK, so why should someone inheriting a 4 bed detached be allowed to keep it tax free when there are some people struggling to afford a one bed flat?

Nope, ISTM that this idea that IT is set at too low a level because of house price inflation is a media fueled idea that has no place in a real financial discussion of the tax. (This is not to say that there are no problems with IT, just that the effect of house price inflation is not one of them)

Tim

Why reduce IHT ? They would just put up other taxes to compensate. Certainly remove more of the loopholes to make it fairer.

I think the problem the media refer to is that, they (the inheritors) cannot sell the inherited assets until AFTER they have paid the inheritance tax. Only after they have paid the tax and have waited for probate to be granted can they sell the inherited assets. This means people often have to raise loans (or perhaps sell their own houses) in order to pay the tax.

Remember also that the tax applies not only to what the dead person owned when they died but also to all gifts they made during the last seven years of their lives. There might be a big tax bill, but no assets left in the estate.

Robert

Allowing the revenue to take a 'mortgage' on the deeds (for maybe up to 80% of its value) is an easy way around this.

Well if people do try and avoid the tax and fail.... Or if people receiving a large 'gift' don't consider the tax implications....

In message , Robert writes

This sint necessarily the case anymore. The CTO will lend you the dosh until the house is sold in certain circs.

Usually No problem.

?????

In which case the inheritors are in the clear. the CTO will chase the donees of the gifts.

Miss L. Toe wrote

If there weren't any loopholes in the Tax system all tax rates could be reduced. ;-)

thoughts:

Why not tax ALL gifts, not just those made during the last 7 years of life? Perhaps other countries do this? If all gifts were taced then the rates could be lower and still raise the same income.

What is the reason why there no capital gains tax at death?

The queen pays income tax these days, but still not inheritance tax.

How do family businesses and farms cope with losing 40% at each generation change?

Robert

I agree. You can pay off the portion ofthe tax related to the deceased's normal residence over a ten year period. You have to pay

I disagree. The amount might be very large indeed. Just because the person will eventually inherit a fortune does not make it easy to obtain and service a large loan for perhaps a year or more.

Are you sure that it is the CTO, rather than the executors, who chase the donees? Do you mean that in those conditions they grant probate before the tax has been collected? It can be hard even to trace someone who, 7 years ago, was given a gift by the deceased. I imagine it can be even harder to extract back 40% of that gift to give to the taxman. I suppose this is why they demand that you take the oldest gifts off the nil band first. It minimises the amount of chasing that has to be done.

Robert

Because the amount raised would be insignificant, most people dont make significant gifts - and those who do, eg parents helping their kids on to the housing ladder, would find ways around any such tax e.g. making it a zero interest loan and gifting to the limit each tax year.

Because there is IHT at the same rate.

None of the rich pay significant IHT.

I though there were exemptions for familiy businesses, but I am no expert.

In message , Robert writes

'First Proceeds' loans, as they were known, were made to the trustees/executors. The ability to lend was determined by the affordability of the estate to fund the advance even though the advance was to the individuals. The execs would be indemnified for their liability by the estate. Strangely, the default position for joint execs is that their basic liability is only Joint, not joint and several, but most bank agreements try and sneak in a J&S clause. The lender would generally take a first charge over the property and a 'first proceeds' form in which ties the execs into using the estate proceeds to pay off the bank before anybody else. So, if the estate was big enough then it was straightforward lending.

Yes.

no.

True, but I don't make the rules. If the execs are aware of the gift then they are likely to know where the beneficiary is. Bear in mind the gifts will have had to total in excess of the Nil Rate Band, so some records are likely to remain.

Yes, but again unless the gifts have been very large it wont be 40% on the whole lot.

No, its just common sense to do the oldest first but also it means that the CTO can get at dosh that the dying testator knew was in excess of his NRB so he gives it away, knowingly, just before he dies. It would be unfair for the beneficiary of a genuine gift seven years ago suddenly found himself paying tax just because of a huge gift made an hour before death.

I agree this is a problem with IHT that needs to be fixed.

I don't agree that it is the problem that the media are referreing to. Only yesterday[1] I read in a paper a couple were complaining that they would have to sell

Quite how a dead person sells a house I can't understand

ITYF that this is a problem that actually affects a very small number of estates.

tim

I think that this is because it is seen as too difficult to operate fairly. It is the ultimate honesty tax and with the chance of being caught very small, many people would not be honest.

Because IHT replaces it. It has been suggested that CGT on death assessts could be introduced instead of IHT. I can't see how this fixes the perceived problem myself. (other than to exclude the ppr, which I have already suggested is itself unfair)

Isn't there a relief for this?

tim

In message , Robert writes

An administrative nightmare!

Having said that the recent trust changes mean all lifetime giftsin excess of £10k to most trusts to be reported and for larger amounts are now potentially subject to IHT when the gift is made and on exit and every 10 years, so perhaps my incredulity is unfounded. HMR&C certainly didnt realise how many trusts are likely to be caught though and there is likekly to be a big reallocation of resources.

IHT IS a Capital Tax, just think of it as CGT with special rules on death

Thats cos she's still alive! :-)

Business Property & Agricultural Property Reliefs provide escape routes.

In message , Miss L. Toe writes

CGT is chargeable on tapered and indexed gains in excess of the threshold at 10%, 20% & 40%

IHT is charged on the whole value in excess of any applicable threshold at

In message , Robert writes

Fair enough

I disagree. IHT only requires the value at death (plus gifts) whereas CGT requires the date and cost of acquisition. It would be more difficult especially for house acquired years and years ago, for example..

I disgree. The vast majority of estates have no gifts needing recording whereas almost all will have assets for which the gain would need to be calculated.

True, but as already said, most estates have no material gifts.

You have forgotten the lifetime rate on chargeable lifetime transfers, exit charges and periodic charges.

But exit & periodic charges can vary from 0 to 6%

How? I thought Gordon Brown has closed all those loopholes.

It depends on circumstances. If there has been divorces and remarriage and there are children involved this can get very unfair IMHO.

Mark