Inheritance Tax


C

colinstone

With the current debate on IHT here is a proposal that would leave IHT
in place but mitigate the effects of rapidly rising property prices. A
main residence should be removed from the IHT equation completely.
Second residences and other chattles and assets etc etc would remain
assessed for IHT. This might mean a reduction in the current IHT
threshold.

The removal of the main residence would follow the principle in with
VAT where the supply of housing is recognised as a social policy and is
zero rated.

Thoughts???
 
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T

Troy Steadman

With the current debate on IHT here is a proposal that would leave IHT
in place but mitigate the effects of rapidly rising property prices. A
main residence should be removed from the IHT equation completely.
Second residences and other chattles and assets etc etc would remain
assessed for IHT. This might mean a reduction in the current IHT
threshold.

The removal of the main residence would follow the principle in with
VAT where the supply of housing is recognised as a social policy and is
zero rated.

Thoughts???
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?
 
A

Allan Gould

With the current debate on IHT here is a proposal that would leave IHT
in place but mitigate the effects of rapidly rising property prices. A
main residence should be removed from the IHT equation completely.
Second residences and other chattles and assets etc etc would remain
assessed for IHT. This might mean a reduction in the current IHT
threshold.

The removal of the main residence would follow the principle in with
VAT where the supply of housing is recognised as a social policy and is
zero rated.
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:
http://www.ft.com/cms/s/2e789c48-349f-11db-bf9a-0000779e2340.html
 
T

tim \(back at home\)

With the current debate on IHT here is a proposal that would leave IHT
in place but mitigate the effects of rapidly rising property prices. A
main residence should be removed from the IHT equation completely.
Second residences and other chattles and assets etc etc would remain
assessed for IHT. This might mean a reduction in the current IHT
threshold.

The removal of the main residence would follow the principle in with
VAT where the supply of housing is recognised as a social policy and is
zero rated.

Thoughts???
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
 
M

Miss L. Toe

With the current debate on IHT here is a proposal that would leave IHT
in place but mitigate the effects of rapidly rising property prices. A
main residence should be removed from the IHT equation completely.
Second residences and other chattles and assets etc etc would remain
assessed for IHT. This might mean a reduction in the current IHT
threshold.

The removal of the main residence would follow the principle in with
VAT where the supply of housing is recognised as a social policy and is
zero rated.

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

Robert

tim said:
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.
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
 
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M

Miss L. Toe

Robert said:
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.
Allowing the revenue to take a 'mortgage' on the deeds (for maybe up to 80%
of its value) is an easy way around this.
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.
Well if people do try and avoid the tax and fail....
Or if people receiving a large 'gift' don't consider the tax
implications....
 
J

John Boyle

In message said:
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.
This sint necessarily the case anymore. The CTO will lend you the dosh
until the house is sold in certain circs.
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
Usually No problem.
(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.
In which case the inheritors are in the clear. the CTO will chase the
donees of the gifts.
 
R

Robert

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

Robert

John said:
In message <1156691789.677449.223000@m79g2000cwm.googlegroups.com>,


This sint necessarily the case anymore. The CTO will lend you the dosh
until the house is sold in certain circs.
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
10% up front. This is a realtively recent reform and is very helpful
indeed.
Usually No problem.
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.
In which case the inheritors are in the clear. the CTO will chase the
donees of the gifts.
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
 
M

Miss L. Toe

Robert said:
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.
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.
What is the reason why there no capital gains tax at death?
Because there is IHT at the same rate.
The queen pays income tax these days, but still not inheritance tax.
None of the rich pay significant IHT.
How do family businesses and farms cope with losing 40% at each
generation change?
I though there were exemptions for familiy businesses, but I am no expert.
 
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J

John Boyle

In message said:
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.
'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.
Are you sure that it is the CTO, rather than the executors, who chase
the donees?
Yes.
Do you mean that in those conditions they grant probate
before the tax has been collected? no.
It can be hard even to trace
someone who, 7 years ago, was given a gift by the deceased.
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.
I imagine
it can be even harder to extract back 40% of that gift to give to the
taxman.
Yes, but again unless the gifts have been very large it wont be 40% on
the whole lot.
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.
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.
 
T

tim \(back at home\)

Robert said:
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.
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
*their* house to pay the tax when they died.

Quite how a dead person sells a house I can't
understand
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.
ITYF that this is a problem that actually affects a very small
number of estates.

tim

[1] I picked it up off the train the day before, it could
have been a paper from any day last week
 
T

tim \(back at home\)

Robert said:
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.
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.
What is the reason why there no capital gains tax at death?
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)
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?
Isn't there a relief for this?

tim
 
J

John Boyle

In message said:
:

Why not tax ALL gifts, not just those made during the last 7 years of
life?
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.
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?
IHT IS a Capital Tax, just think of it as CGT with special rules on
death
The queen pays income tax these days, but still not inheritance tax.
Thats cos she's still alive! :)

How do family businesses and farms cope with losing 40% at each
generation change?
Business Property & Agricultural Property Reliefs provide escape routes.
 
J

John Boyle

In message said:
Because there is IHT at the same rate.
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 <=6%, 20%, & 40%.
 
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R

Robert

John said:
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 <=6%, 20%, & 40%.

it would seem (to me) much fairer to charge CGT at death and abandon
IHT. it would also be more straightforward to file and for Capital
Taxes to check. It would still involve the executors filing a return
of all the gains but that would be much easier (and less susceptible to
fraud) than compiling the list of gifts made over the last 7 years.
the CGT taxable assets exist in the person's estate so can be easily
identified. the gifts are very difficult to track down and are easy to
miss or conceal.
IHT is charged on the whole value in excess of any applicable threshold
at <=6%, 20%, & 40%.
IHT is charged at 40% (above the threshold). there is no sliding scale
unless the previous poster meant the time-taper that is applied to the
tax due from the gifts. That rarely has any effect because the gifts
are taken off the nil band first and the tax is zero. Of course,
theeffect is not 'zero tax' since they use up nil band that then
exposes other assets to the full 40% tax.

Robert
 
J

John Boyle

In message <1156847092.491434.260600@h48g2000cwc.googlegroups.com>,
it would seem (to me) much fairer to charge CGT at death and abandon
IHT.
Fair enough
it would also be more straightforward to file and for Capital
Taxes to check
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..
. It would still involve the executors filing a return
of all the gains but that would be much easier (and less susceptible to
fraud) than compiling the list of gifts made over the last 7 years.
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.
the CGT taxable assets exist in the person's estate so can be easily
identified. the gifts are very difficult to track down and are easy to
miss or conceal.
True, but as already said, most estates have no material gifts.
IHT is charged at 40% (above the threshold).
You have forgotten the lifetime rate on chargeable lifetime transfers,
exit charges and periodic charges.
there is no sliding scale
But exit & periodic charges can vary from 0 to 6%
 
M

Mark

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.
How? I thought Gordon Brown has closed all those loopholes.
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?
It depends on circumstances. If there has been divorces and
remarriage and there are children involved this can get very unfair
IMHO.

Mark
 
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J

Jeff

Mark said:
It depends on circumstances. If there has been divorces and
remarriage and there are children involved this can get very unfair
IMHO.
But nowhere near as unfair as income tax!

Seriously, why should money that drops into your lap from someone's death be
taxed less than money you had to graft for?

Jeff
 

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