Have your parents thought about inheritance tax?
- Thread starter singist
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Sequoia said:
It doesn't force him to do anything as far as I can see, apart from pay a bit in taxes on his windfall - far less incidentally than he would pay in income taxes if he earned the same sum by working for it
He would still be left enough to purchase a smaller property in the same area, to live in himself. The subject is moot because on his own he most probably wouldn't be able to afford to live in the house anyway.dirtydog said:It doesn't force him to do anything as far as I can see, apart from pay a bit in taxes on his windfall - far less incidentally than he would pay in income taxes if he earned the same sum by working for it
How does an 18 year old raise the money to pay the government?
Let's say the bill is £200,000. How do they pay? If they can't afford a loan to buy house how can they afford a £200,000 bill?
Remember, they can't sell the house to pay the bill.
Some of the comments here are quite bizzare - 'oh yeah im fine with ITax ' WTF?
Funny how when the Queen mum died they didnt have to pay all that tax right??
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On another more amusing note -
There is another way around loosening some tax -
Rent!
Yes thats right - not knowing the complete ins & outs but it is a way - all be it a bit funny!
Cant remember the hows but basically the child for instance buys/gets given the house - and everyone is still to live there.
Now in order for this to work the parents have to pay the owner the going rent for the house/rooms or whatever- so basically you could wake up every first of the month and go demanding the rent of your dad lol -would be kinda funny!!
(details are sketchy im aware but its something along those lines - some one else care ot enlighten?>)
Funny how when the Queen mum died they didnt have to pay all that tax right??
-
On another more amusing note -
There is another way around loosening some tax -
Rent!
Yes thats right - not knowing the complete ins & outs but it is a way - all be it a bit funny!
Cant remember the hows but basically the child for instance buys/gets given the house - and everyone is still to live there.
Now in order for this to work the parents have to pay the owner the going rent for the house/rooms or whatever- so basically you could wake up every first of the month and go demanding the rent of your dad lol -would be kinda funny!!
(details are sketchy im aware but its something along those lines - some one else care ot enlighten?>)
Associate
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Sorry if this sounds dence, but tax confuses me, i'm set to inherit a house and not cash, would this effect me in any way ?
It forces him to move from his family home, perhaps the home he was born into and has lived all his life, if he can't raise a substantial sum to pay the tax.dirtydog said:It doesn't force him to do anything as far as I can see, apart from pay a bit in taxes on his windfall - far less incidentally than he would pay in income taxes if he earned the same sum by working for it
Bear in mind that he may get very little in cash, but a BIG tax bill. It's very possible the only way to pay it is to move.
And if you're in an area where property prices are high, an expensive house is certainly not a big or fancy one. As I said earlier, a 3-bed semi with a loft conversion could be a £500,000 house. So it's not beyond possibility an 18-year old could run it, especially if Mum and Dad had paid off the mortgage, as could well be the case. All that would be left are standard living bills, many of which he would still have to pay if he rented. I don't see why you think he couldn't afford to run the place. We aren't talking about a mansion or a country estate here.
As for the comparison with income taxes, well, it's not like for like. Why not look at CGT instead. After all, if his parents bought the place in, say, 1965, they probably paid £5000 for it. It has increased from £5000 to £500,000 and if they had sold it, they wouldn't pay a penny in CGT. So if they were planning ahead, they'd have sold and enjoyed the money by, perhaps, spending it on travelling and the government then wouldn't necessarily have seen any tax revenue from it at all. But, because the parents decide to give their kids a start in life and remove the stresses that they went through, why should the government get a large chunk of it? What that amounts to is taxing people for being prudent.
Incidentally, a bit of careful tax planning would avoid that 18-year old paying any tax anyway. If the parents arranged for their interest in the house to be severed from each other (so that they each own 50%, rather than having a joint interest in 100%), then each parent's estate is disposed off according to their individual wills. So if Dad dies, his share wouldn't automatically go to his wife, as there is no longer joint ownership. His estate would then be subject to the £275,000 threshold, and would fall under it, so no IHT is due. When she goes, her estate now only includes half the value of the house, which also falls under £275,000 and also therefore attracts no IHT. The wills then need to ensure that a condition of the bequest if lifetime tenancy for the surviving partner. Son would then have the entire house, and no IHT bill.
So the government only get their £90k tax revenue if house prices have risen far faster than IHT thresholds, AND the parents don't have some very simple tax (and legal) advice. Or, of course, they sell up and shift their money, and residency status, abroad. This used to be a strategy restricted to the rich, but it no longer is and this ludicrous IHT situation provides a fairly strong additional motivation.
Indeed .... thereby forcing even people that want to sell the house into expensive bridging loans, and if the sale tax months (as it often does), that costs thousands in loan charges.Vanilla said:
Bridging loans happen then. The banks also get their pound of flesh that way.dirtydog said:
Sequoia said:
The 18 year old in this example hasn't been prudent though has he, so he isn't being penalised for being prudent. He has done nothing to deserve special consideration - he isn't the one who has worked for years and bought a house. There is nothing unique about the concept of the money that his parents earned and paid income tax on, being taxed again. That is what happens in an economy - as money changes hands the same money is taxed over and over again, ad infinitum.
It's not the 18-year old that pays the tax. It's the parents .... or rather, their estate. Tax is deducted before it gets to the child, so his prudence or lack of it isn't the point. If the parents blew the lot in the casino at Monte Carlo, no tax gets paid (not to the UK government anyway). If they save to pass it to their kids, it does. So, prudence doesn't pay, in IHT terms. If the parents are prudent, their estate gets clobbered. If they aren't, it doesn't.dirtydog said:
It doesn't actually take much to see that there are some fairly obvious steps that can be taken to avoid paying this tax, though the more legal ones will cost £200/hour (ish) for a good tax-aware solicitor.
Besides, the parents worked for years, earned income and paid tax on it, then they bought a house and paid tax on it. Why should they get charged tax again on what they bought, because they want their kids to benefit from it? The government has already had several bites at this particular apple. They don't deserve another one.
If this tax was aimed at the wealthy, I wouldn't find it anything like so obnoxious. But it is increasingly clobbering ordinary people that have already paid tax on the money they bought the house with.
It's a pedantic point either way, and I only raised it as you commented about the 18 year old not being prudent. I was talking about his parent's prudence resulting in them being penalised by their estate getting clobbered, not whether or not the son was prudent.dirtydog said:To all intents and purposes the 18 year old pays though, surely
But if I'm being pedantic, it may cost the beneficiary a lot of money, but it's the Personal Representatives that pay it, because they pay it before getting the Grant of Probate which allows them to dispense the estate to the beneficiaries, including the 189-year old.
If I was being especially pedantic, though, I'd also point out that the PR(s) and the beneficiaries may well be the same people, in which case it both costs junior, and he pays it.
But that all detracts from the point, which in my view is that taxation ought to relate to the ability to pay, and to be progressive. And any tax that forces someone to sell their home is, unless exceptional conditions apply, grossly unfair is a modern society. That's why I dislike IHT (at least, in the way it currently works), and also why I dislike National Insurance and Council Tax. Both of these largely regressive in effect.
Perhaps people that think that this is a fair tax would like to see everyone living in a 2 bedroom house with 2-3 kids squashed into 1 room because that is what you are asking the people in the south east to do to have the same benefits of those in the rest of the country with regards to this tax. The threshold of this tax given the house price rises should be approaching £1 million and set regionally
To all those suggesting that increasing the threshold will move the tax around, you are correct in one sense, however >15 years ago when this threshold was fair a certain amount of tax was got from IHT, now 15 years on i dont know what the figure is but its a hell of a lot higher now, raising the threshold should not be seen as lost revenue but giving back the middle class (+poor in the SE) what is righly theirs. If this means that we dont get the latest piece of waste of money legislation/huge expenses for MPs/ and a million other ways to waste tax payers money then what is wrong with that.
To all those suggesting that increasing the threshold will move the tax around, you are correct in one sense, however >15 years ago when this threshold was fair a certain amount of tax was got from IHT, now 15 years on i dont know what the figure is but its a hell of a lot higher now, raising the threshold should not be seen as lost revenue but giving back the middle class (+poor in the SE) what is righly theirs. If this means that we dont get the latest piece of waste of money legislation/huge expenses for MPs/ and a million other ways to waste tax payers money then what is wrong with that.
This tax only raises about 2-3 billion a year. Now do you think that when some one like Richard Branson dies this will jump up from their contribution?
you bet it won't they probably won't pay a penny which means the very people this tax targets don't pay it so what is the point in having it.
you bet it won't they probably won't pay a penny which means the very people this tax targets don't pay it so what is the point in having it.
It has been mentioned, there are ways to avoid it but the people with the money/assets have to think about it early enough and actually do something about it.
Not the best subject matter to raise when visiting ones parents for Sunday lunch but certainly needs airing at some point.
Not the best subject matter to raise when visiting ones parents for Sunday lunch but certainly needs airing at some point.
Soldato
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My nan recently passed away leaving a small fortune, 40% of it has been gobbled up by the government. My parents are already in the process of handing over money to me to invest in various things in order to hopefully circumnavigate this madness when they themselves eventually pass away.