£9bn inheritence

[h4rm0ny]

So if you have 10,000 acres (or an acre for that matter) of woodland set aside for nature you should have it removed from you?

Conservation is a "use". In contrast a house has a much narrower range of purposes that can be applied to it - it is for living in.

How would that work for companies and offices? If you don't use all of that tower block you built you have to give part of it away?

Have to? Should? In what sense? I'm stating an ethical view. Are you asking if people should be made to comply with it or if letting others use the offices you don't directly is required to have complied with that ethical view? In the scenario you list, the view would state that you don't act as a landlord and make your money through renting the empty parts. The expectation of someone attempting to comply with this ethical view would be that if they built more than they needed then the excess would have been sold to those who do need it. Or more likely never acquired in the first place.

 

[Pudney]

The main point is that there is 9 billion being passed on here that ordinarily would be taxed heavily and there is a mechanism available for a huge tax bill to be avoided. The fact that assets might be taxed upon being put inside some trusts these days is irrelevant to that point, the fact that income coming out of trusts is taxed is irrelevant to that point. We're talking about a tax bill that would have been in the billions and that has been avoided, those other sources of taxation don't make up for that.

There's a 10 year anniversary charge on the assets in a trust. It's not at the same level as IHT, but then again you only end up paying IHT once on your assets not every 10 years!

 

[dowie]

There's a 10 year anniversary charge on the assets in a trust. It's not at the same level as IHT, but then again you only end up paying IHT once on your assets not every 10 years!

Paying a few percent once a decade (which can be covered from the income made by the trust - as it is clearly growing in spite of this) is rather different to 40% of the assets being liquidated.

A big chunk of prime London real estate has essentially been locked up perpetually for a single heir of this one family and the trust itself can (and likely will) keep on growing.

It is still circumventing part of the purpose of IHT and I'm still not seeing why we, as a society, need these sorts of trusts to exist.

 

[Greebo]

This is rubbish. IHT is not like Income Tax as it's based on assets not income. It means it's inherently problematic to asset rich and cash poor people. The prime example is farmers. Whilst there is Agricultural relief the conditions can be onerous, particularly when the land owner lives a long life, far beyond where they are able to continue working the land. In order to guarantee the relief you really do need to be careful yet farmers aren't generally cash rich to pay for fees.

I know they are two totally different taxes. My point was that once the tax bill gets big enough, you can afford to pay accountants to set things up to reduce both to zero or almost zero.

That was my only analogy between the two taxes.

 

[Richdog]

No "average Joe" pays any inheritance tax anyway. You need to be in the very top echelons of British wealth to be subject to the tax.

Good god, it is frightening how ignorant many people on this forum, and in the UK, really are. With the rising house prices, anyone who has inherited a house worth over £325,000 will be subject to it.

Educate yourself.

 

[Pudney]

Paying a few percent once a decade (which can be covered from the income made by the trust - as it is clearly growing in spite of this) is rather different to 40% of the assets being liquidated.

Yes, because based on a persons average lifespan the Trust will pay tax 8 times against the one time IHT will be. I think the 10 yearly charge is roughly 6% normally, so cumulatively it should broadly balance out.

It's also slightly more beneficial from a cashflow perspective as you have a more steady income stream rather than a once every now and then windfall.

 

[dowie]

Yes, because based on a persons average lifespan the Trust will pay tax 8 times against the one time IHT will be. I think the 10 yearly charge is roughly 6% normally, so cumulatively it should broadly balance out.

Well ignoring various exemptions that could be used to lower the bill. Cumulatively it very likely doesn't balance out else people wouldn't bother setting the things up in the first place!

In this case his wealth has grown massively over his lifetime - he's previously 'only' had 1 billion and has grown that to 9 billion. The IHT could have been approx 3.6 billion... whereas he's perhaps had 3 * 10 year payments to make and on the first payment he wasn't even worth 3.6 billion and at the time of the second that was probably close to his net worth. So he's maybe had a single 6% payment in recent years on an amount of several billion but that pales in comparison to the 40% charge that would be due on the total amount accumulated at the end of his life.

The simple fact that the payments have been affordable from ongoing income without having to sell assets (in fact he's actively developed and acquired assets though his life) ought to indicate that this arrangement is much more beneficial for preserving and growing his dynastic wealth than having a 40% bill on everything - something that can't be covered unless he had crazily high cash reserves (which would also mean he couldn't accumulated and hold so much property).

It's also slightly more beneficial from a cashflow perspective as you have a more steady income stream rather than a once every now and then windfall.

That is debatable but not really relevant to the point I was making re: dynastic wealth - fact is the 10 year payments are clearly affordable from the ongoing income made by the trust and in spite of them the trust has carried on growing. A 40% tax on 9 billion wouldn't be affordable and a big chunk of land that would otherwise be held and continually inherited would have to be sold in having this trust part of the purpose of IHT has therefore been circumvented.

I just don't see any need to allow this sort of arrangement to continue, it doesn't seem to have any benefit for the rest of society. The examples provided by another poster seem to have involved either a charitable trust (which I'm not objecting to) or specifying some specific purpose for the use of the cash - which is nice to have... but hardly that great. Perhaps a trust that can benefit a single heir and not be continually rolled on perpetually would solve that latter example while also excluding the use of them to hoard wealth and pass on for multiple generations of heirs while circumventing IHT.

 

[Pudney]

Well ignoring various exemptions that could be used to lower the bill. Cumulatively it very likely doesn't balance out else people wouldn't bother setting the things up in the first place!

You'd be surprised. Cash now is nearly always more valuable to people than cash in 10 years or even longer. Working in tax it's not uncommon to take the least cash beneficial option purely because the day 1 benefit is greater. Generally assuming a tax advantage from a complex situation such as this isn't necessarily valid.

In this case his wealth has grown massively over his lifetime - he's previously 'only' had 1 billion and has grown that to 9 billion. The IHT could have been approx 3.6 billion... whereas he's perhaps had 3 * 10 year payments to make and on the first payment he wasn't even worth 3.6 billion and at the time of the second that was probably close to his net worth. So he's maybe had a single 6% payment in recent years on an amount of several billion but that pales in comparison to the 40% charge that would be due on the total amount accumulated at the end of his life.

True, but the convenient point you've not covered is that (barring unfortunate events) the Trust is going to make another payment in 10 years time, and another in 10 years, and another etc., whereas IHT would only be payable again in maybe 60 years time?

The simple fact that the payments have been affordable from ongoing income without having to sell assets (in fact he's actively developed and acquired assets though his life) ought to indicate that this arrangement is much more beneficial for preserving and growing his dynastic wealth than having a 40% bill on everything - something that can't be covered unless he had crazily high cash reserves (which would also mean he couldn't accumulated and hold so much property).

Obviously a Trust is more affordable, but my point is that placing assets in a Trust doesn't protect you from charges. Yes, they're protected from IHT but HMRC have other methods to get tax from them.

That is debatable but not really relevant to the point I was making re: dynastic wealth - fact is the 10 year payments are clearly affordable from the ongoing income made by the trust and in spite of them the trust has carried on growing. A 40% tax on 9 billion wouldn't be affordable and a big chunk of land that would otherwise be held and continually inherited would have to be sold in having this trust part of the purpose of IHT has therefore been circumvented.

I just don't see any need to allow this sort of arrangement to continue, it doesn't seem to have any benefit for the rest of society. The examples provided by another poster seem to have involved either a charitable trust (which I'm not objecting to) or specifying some specific purpose for the use of the cash - which is nice to have... but hardly that great. Perhaps a trust that can benefit a single heir and not be continually rolled on perpetually would solve that latter example while also excluding the use of them to hoard wealth and pass on for multiple generations of heirs while circumventing IHT.

Given the Trust mainly holds companies that run the property empire it's debatable how much IHT it's saved them given the availability of Business Property Relief (on the likelihood it is available). The most likely incentive for the Trust is actually more likely to be the (now deceased) Duke's control/protection over the future family's use of the wealth.

Obviously BPR presents it's own issues with the desire to redistribute assets as it also provides 100% protection from IHT. However, the simple fact is what is the most important factor of IHT, the generation of cash or the redistribution of wealth? The likely answer is the former, particularly given the latter is a political matter that varies person to person, government to government.

Edits: having a really bad day with the square brackets...

Edit: and another minor clarification, although I work in tax I know little about IHT, much less when you start involving Trusts

 

[dowie]

True, but the convenient point you've not covered is that (barring unfortunate events) the Trust is going to make another payment in 10 years time, and another in 10 years, and another etc., whereas IHT would only be payable again in maybe 60 years time?

if it carries on growing as it has done then that isn't an issue (for the estate) and the point made previously still applies. It could work out in the favour of the rest of society if the assets held become significantly less valuable over time... in that instance we'd have at least got the small % payments for a couple of the 10 year periods

The most likely incentive for the Trust is actually more likely to be the (now deceased) Duke's control/protection over the future family's use of the wealth.

I'm not sure I'd agree with that but even then this is part of what I'm objecting to - dynastic wealth being perpetually held over multiple generations by a single person as a result of these structures being allowed.

However, the simple fact is what is the most important factor of IHT, the generation of cash or the redistribution of wealth? The likely answer is the former, particularly given the latter is a political matter that varies person to person, government to government.

I'm not sure about that, IHT generates relatively little in the grand scheme of things - my main objection is that trusts like these allow for dynastic wealth and my opinion is that part of the usefulness of IHT is to try and stop that and make society more meritocratic. In countries where the aristocracy doesn't exist and assets are split equally among offspring this becomes less of an issue anyway the trusts set up in say the USA maybe protect a generation or two at best and the dynastic wealth is diluted naturally regardless. In the situation where wealth is accumulated unhindered and passed to a single heir it is problematic and will have to be continually looked at by governments - the idea of some random male perpetually being passed the most expensive parts of London (while the unearned fortune being passed on is allowed to continually grow)

 

[Pudney]

if it carries on growing as it has done then that isn't an issue (for the estate) and the point made previously still applies. It could work out in the favour of the rest of society if the assets held become significantly less valuable over time... in that instance we'd have at least got the small % payments for a couple of the 10 year periods

Apologies, I'm not sure I understand the point. The original point you made was 40% of the 9bn would be a lot more than a few % of the assets on a 10 year cycle. I'm not sure how your above applies to this.

I'm not sure I'd agree with that but even then this is part of what I'm objecting to - dynastic wealth being perpetually held over multiple generations by a single person as a result of these structures being allowed.

My anecdotal evidence from hearing the tales of people who do deal with such tax matters would probably surprise you just how much some people wish to control how "their" wealth is exercised by future generations. It's interesting sometimes.

I'm not sure about that, IHT generates relatively little in the grand scheme of things - my main objection is that trusts like these allow for dynastic wealth and my opinion is that part of the usefulness of IHT is to try and stop that and make society more meritocratic. In countries where the aristocracy doesn't exist and assets are split equally among offspring this becomes less of an issue anyway the trusts set up in say the USA maybe protect a generation or two at best and the dynastic wealth is diluted naturally regardless. In the situation where wealth is accumulated unhindered and passed to a single heir it is problematic and will have to be continually looked at by governments - the idea of some random male perpetually being passed the most expensive parts of London (while the unearned fortune being passed on is allowed to continually grow)

IHT doesn't generate a lot, but that doesn't mean it's main point becomes the redistribution of wealth. It is the main point to you personally, whereas to another person it won't be. Ultimately it's a matter for democracy to decide and quite frankly it hasn't seemed to bother enough people for it to become a true issue.

Personally I think the main family home should always be exempt from IHT. As should business assets (including farming). Everything after that should be fair game.

 

[Aldav]

No, a highly privileged person has had the benefit of being given every opportunity to pursue what they wanted to at the expense of other people who may well be the better candidate at the end of the day. They they use that privilege to secure opportunity in that career and then deprive the opportunities for the better people who didn't have that luxury. If that money had been used fairly we'd end up in all likelihood with the better doctor.

You can try and dress it up as being all beneficent in all that Cameronesque waffle but at the end of the day it's waffle.

The point you're missing when you decide how my money can and can't be "fairly" used is that it's my money I'm using to give my kids every chance I can.

Fairly? You cheeky ****.

 

[StriderX]

The point you're missing when you decide how my money can and can't be "fairly" used is that it's my money I'm using to give my kids every chance I can.

Fairly? You cheeky ****.

I think at a point, say Eton or whatever (ill ignore Oxford/Cambridge as, its less of an issue), there comes the reality that maybe a reality check is required for any kid being cosied up in this cushy world, is disingenuous if life were to take a turn.

 

[dowie]

Apologies, I'm not sure I understand the point. The original point you made was 40% of the 9bn would be a lot more than a few % of the assets on a 10 year cycle. I'm not sure how your above applies to this.

The point that if the assets carry on growing at a similar rate then a few % every 10 years is rather insignificant compared to a 40% hit at the end of the next Duke's life? I thought that was self explanatory?

The previous Duke has had say 3 of these 10 year payments and the first of them was back when he was worth 'only' 1 billion. The next when he's increased that a bit and the latest being the only one that is made on an amount close to his net worth upon death... Compared to 40% on 9 billion it is a much smaller amount. Of course if this estate were to decline in value then that situation may be different... but realistically it owns big chunks of prime central London and is actively involved in property development - it doesn't look like it will be declining any time soon.

IHT doesn't generate a lot, but that doesn't mean it's main point becomes the redistribution of wealth. It is the main point to you personally, whereas to another person it won't be.

Dunno about that, when Churchill and Lloyd George introduced the people's budget which increased the rates of Estate duty (which later became IHT) they initially wanted to introduce a land value tax too. Nonetheless their increase in Estate duty still lead to the breakup of some Estates.

In fact he made pretty clear his views on land ownership/unearned wealth:

https://en.wikipedia.org/wiki/Winston_Churchill

In 1909, Churchill made several speeches with strong Georgist rhetoric,[83] stating that land ownership is at the source of all monopoly.[84] Furthermore, Churchill emphasizes the difference between productive investment in capital (which he supports) and land speculation which gains an unearned income and has only negative consequences to society at large ("an evil").

Ultimately it's a matter for democracy to decide and quite frankly it hasn't seemed to bother enough people for it to become a true issue.

well it has to some extent thus the reason for some of the regulations, taxes etc.. but the inland revenue seems to have failed in at least one important case when trying to clamp down on these trusts. Maybe more can be done in future, if estates like this one carry on growing.

Personally I think the main family home should always be exempt from IHT. As should business assets (including farming). Everything after that should be fair game.

agreed, which is why I disagree with the idea of these trusts being allowed to continue as they currently do. If someone wants to become spectacularly wealthy within their lifetime then good for them and if some of that passes down to a generation or two then so be it. But some special vehicle that just carries on holding assets and growing in size for the benefit of multiple male heirs... it just isn't socially useful to us to allow such a vehicle to bypass the IHT rules we have in place.

 

[chrcoluk]

So...like I said, historical theft. The land was taken and given.

a lot of historical wealth was gained in fighting/wars whatever you want to call it, eventually a day came when all the wealthy people decided to stop fighting for land and establish law and order to preserve what they had, thats why we have police and miltiary today.

Ironic as if you e.g. today goto somewhere, threaten someone at say gunpoint to hand over some deeds, it is a crime and would be punished for it, but centuries ago it gained you wealth legitimately.

 

[Xordium]

The point you're missing when you decide how my money can and can't be "fairly" used is that it's my money I'm using to give my kids every chance I can.

Fairly? You cheeky ****.

Thanks for biting. So you've now stopped your 'Oh look it really benefits society' waffle to coming back to the crux of the issue for you: it's all mine mwhahaha.

Doesn't take long for the subterfuge to stop and the greed and entitlement to surface.

 

[Roar87]

The point you're missing when you decide how my money can and can't be "fairly" used is that it's my money I'm using to give my kids every chance I can.

Fairly? You cheeky ****.

I suppose the problem is that kids should be the deciding factor in how well they do, not who their parents are or what they earn, otherwise you get low social mobility. This is a long term problem for society because you end up with people like Jeremy Hunt as your Health Secretary even though he clearly has a below average IQ and would be more suited to handing out leaflets or selling vegetables

 

[Pudney]

The point that if the assets carry on growing at a similar rate then a few % every 10 years is rather insignificant compared to a 40% hit at the end of the next Duke's life? I thought that was self explanatory?

The previous Duke has had say 3 of these 10 year payments and the first of them was back when he was worth 'only' 1 billion. The next when he's increased that a bit and the latest being the only one that is made on an amount close to his net worth upon death... Compared to 40% on 9 billion it is a much smaller amount. Of course if this estate were to decline in value then that situation may be different... but realistically it owns big chunks of prime central London and is actively involved in property development - it doesn't look like it will be declining any time soon.

Every 10 years the value of the assets in the Trust is measured and tax is paid on that valuation. Whether the assets increase or decrease isn't a disadvantage to the Exchequer as the tax is payable on the revalued assets. So the next 10 yearly charge will be a smaller % that then 40% due but will be payable on a larger value than 9bn (presuming along with you that Mayfair prices don't fall! ).

This is the bit that's confusing me about your statement, I can't make out whether you're saying the small % is charged on the original asset values (i.e. the 1bn).

Dunno about that, when Churchill and Lloyd George introduced the people's budget which increased the rates of Estate duty (which later became IHT) they initially wanted to introduce a land value tax too. Nonetheless their increase in Estate duty still lead to the breakup of some Estates.

In fact he made pretty clear his views on land ownership/unearned wealth:

https://en.wikipedia.org/wiki/Winston_Churchill

Oh, I agree Churchill's intentions were to distribute assets, but tax policy is a very fluid thing and I wouldn't assume even Osborne's policies on taxation are relevant now let alone a previous chancellor/government.

well it has to some extent thus the reason for some of the regulations, taxes etc.. but the inland revenue seems to have failed in at least one important case when trying to clamp down on these trusts. Maybe more can be done in future, if estates like this one carry on growing.

What case are you referring to?

agreed, which is why I disagree with the idea of these trusts being allowed to continue as they currently do. If someone wants to become spectacularly wealthy within their lifetime then good for them and if some of that passes down to a generation or two then so be it. But some special vehicle that just carries on holding assets and growing in size for the benefit of multiple male heirs... it just isn't socially useful to us to allow such a vehicle to bypass the IHT rules we have in place.

At least we agree on something

Although I do disagree with viewing trusts as the individuals property. Trusts don't escape taxation, they are just taxed differently which is the main point I'm trying to make.

 

[dowie]

Every 10 years the value of the assets in the Trust is measured and tax is paid on that valuation. Whether the assets increase or decrease isn't a disadvantage to the Exchequer as the tax is payable on the revalued assets. So the next 10 yearly charge will be a smaller % that then 40% due but will be payable on a larger value than 9bn (presuming along with you that Mayfair prices don't fall! ).

This is the bit that's confusing me about your statement, I can't make out whether you're saying the small % is charged on the original asset values (i.e. the 1bn).

it is charged based on the value of the assets at the time... which in this case, for the first payment, would have been circa 1 billion and for the second would be a few..

whereas if the estate was not in a trust there would have been a much, much larger 40% charge on 9 billion

point being so long as the assets keep growing like that over time then the 10 year charge involves much less tax

(obvs there are business properties and farmland involved too but that relief applies to both the IHT or the 10 year charge)

I mean lets say there was a 10 year charge when it was worth 1 billion @6% = 60 million... then 10 years later when it is worth say 4 billion = 240 million, then when worth say 7.5 billion = 450 million so total = 750 million

vs 40% of 9 billion = 3.6 billion

even then my argument isn't purely financial but also ideological - for example - the estate isn't going to have 40% in cash reserves, if faced with an IHT bill it would likely have to be partially broken up... which serves a useful function in itself as property comes back to the market instead of the most expensive parts of London being locked away (in theory forever) and not accessible.

Taken to extremes what if more people did this? What would society be like if a select few trusts owned all freehold property in London over multiple generations? Of how about all of the UK? The 'heirs' after multiple generations having no more dna from the original founders of the estates as anyone else but because of the will of some random person (or people) who lived hundreds of years ago say a large chunk of property in a capital city is secured, unavailable for purchase but just locked away in trusts for the benefit of some random line of male heirs. That is more than just leaving something for the kids, grand kids... it is potentially fundamentally affecting society multiple generations down the line.

We've gradually evolved from a feudal society, then moved away from aristocrats owning everything... I don't think trusts like this will necessarily survive many more generations as they're pretty regressive. It isn't really right that someone who is long dead can dictate some terms for the use of a bunch of assets in the capital city in perpetuity at least not when they're not being used for charitable purposes.

What case are you referring to?

https://en.wikipedia.org/wiki/McPhail_v_Doulton

didn't require a list of beneficiaries ergo discretionary trusts became more useful for estate planning... as they could be set up for the benefit of multiple generations of unnamed heirs

Although I do disagree with viewing trusts as the individuals property. Trusts don't escape taxation, they are just taxed differently which is the main point I'm trying to make.

I'm aware they're taxed differently and that is part of the problem I'm highlighting. I've not claimed they are individual's property I'm claiming that they're vehicles used to avoid inheritance tax and preserve dynastic wealth over several generations of heirs and that when used for this purpose there is not much benefit for the rest of society, in fact I'd say that preserving a massive chunk of dynastic wealth over multiple generations is rather a negative thing and I think further clampdowns are required.