Why should we have to pay inheritance tax?

Richdog · 20 Aug 2006 at 19:03

Just watched the news, and there was an article about a labour MP wanting inheritance tax abolished. I think this would be severely welcomed... obviously it's lucrative for the government, bringing approximately 3-6bn to their coffers each year... but why the hell should I have to just hand over a whopping 40% of the money that my father or mother have laboured their entire lives to leave me? In my opinion it's one of the biggest frauds ever conceived, and thinking that I will one day have to pay it makes my blood boil. :mad:

Has anyone suffered this yet? Got any tips for legally minimising the eventual damage this will cause me?

robmiller · 20 Aug 2006 at 19:04

I should imagine the best way to do it is by tying it up in something like a house, but I'm not financial adviser.

Raymond Lin · 20 Aug 2006 at 19:06

Its tax on YOUR windfall, like any CGT (capital gains tax), you get tax on your income. So if you get hundreds and thousands of pounds, you will get taxed on it.

Your "passed away" parents are not getting taxed, you are.

btw, there are ways to limit the IHT or even avoid it if you plan early in advance, eg. PET.

Von Luck · 20 Aug 2006 at 19:11

<Devil's advocate>

On the other hand, isn't there something slightly obscene in people aquiring wealth without having to work for it. Would it not be better to have such undeserved wealth spread across the entire population, rather than just building up and up with a monied few?

JollyGreen · 20 Aug 2006 at 19:12

Von Luck said:
<Devil's advocate>

On the other hand, isn't there something slightly obscene in people aquiring wealth without having to work for it. Would it not be better to have such undeserved wealth spread across the entire population, rather than just building up and up with a monied few?

*points* COMMUNIST! *lynches*

In all seriousness though, if we did that, there'd be far less motivation for people to amass those massive fortunes in the first place, which would adversely affect the economy.

Brum Man · 20 Aug 2006 at 19:12

Richdog said:
Got any tips for legally minimising the eventual damage this will cause me?

Making small regular gifts to family to make use of annual allowances, making sure that both of them are using each of their nil rate bands when making wills etc, transfer houses/other large objects over to family members to make use of Potentially Exempt Transfers, signing things such as life policies into trusts.....

There is a way round a lot of it if that planning is done early enough and maximum use of all allowances are used.

chrisd · 20 Aug 2006 at 19:13

Von Luck said:
<Devil's advocate>

On the other hand, isn't there something slightly obscene in people aquiring wealth without having to work for it. Would it not be better to have such undeserved wealth spread across the entire population, rather than just building up and up with a monied few?

Why should people work their entire lives to ensure the financial stability of their family, for it to be all taken from them when they die?

PardonTheWait · 20 Aug 2006 at 19:14

Von Luck said:
<Devil's advocate>

On the other hand, isn't there something slightly obscene in people aquiring wealth without having to work for it. Would it not be better to have such undeserved wealth spread across the entire population, rather than just building up and up with a monied few?

No. You provide for your children in life, you provide for them in death. They in turn do the same for their children.

Brum Man · 20 Aug 2006 at 19:15

Raymond Lin said:
Your "passed away" parents are not getting taxed, you are.

No, your parents estate is.

robmiller · 20 Aug 2006 at 19:19

Brum Man said:
No, your parents estate is.

Well not really, the taxation is because it's being handed over to you and occurs between those two states. If they left it in a bank account somewhere it wouldn't have the same taxation (although I believe it would be siezed later on?).

The tax is because you're inheriting it, not because they died.

barnettgs · 20 Aug 2006 at 19:24

Right, let me get this clear...if the house is being handed over to you and you're not going to sell this house but you still have to pay the inheritance tax?

robmiller · 20 Aug 2006 at 19:25

I believe so:

The tax estate includes:

1. all of the deceased's assets, whether real estate or personal estate, and includes even small-value items such as the contents of his or her home;
2. any gifts made in the seven years before death;
3. some assets which were not owned by the deceased but which are affected by the death (the most common example is a life interest in a trust, technically known as an interest-in-possession);
4. gifts with reservation of benefit

Raymond Lin · 20 Aug 2006 at 19:25

robmiller said:
Well not really, the taxation is because it's being handed over to you and occurs between those two states. If they left it in a bank account somewhere it wouldn't have the same taxation (although I believe it would be siezed later on?).

The tax is because you're inheriting it, not because they died.

The administrater of the estate will have 12 months to distribute the estate in accordance to the will or the law of intestacy, if there are no family or will then the estate will go to the crown.

Brum Man · 20 Aug 2006 at 19:26

robmiller said:
Well not really, the taxation is because it's being handed over to you and occurs between those two states. If they left it in a bank account somewhere it wouldn't have the same taxation (although I believe it would be siezed later on?).

The tax is because you're inheriting it, not because they died.

So why is the case with gifts for the purpose of PET's that tax is only payable on death of the one making the gift? Also, IHT is payable on death, not at the point on which the estate is distributed.

robmiller · 20 Aug 2006 at 19:28

Brum Man said:
So why is the case with gifts for the purpose of PET's that tax is only payable on death of the one making the gift? Also, IHT is payable on death, not at the point on which the estate is distributed.

Well it's not inheritance unless the giver is dead, surely :/

Raymond Lin · 20 Aug 2006 at 19:28

Brum Man said:
So why is the case with gifts for the purpose of PET's that tax is only payable on death of the one making the gift? Also, IHT is payable on death, not at the point on which the estate is distributed.

PET won't be IHT if the PET has been in the recipient's posessions for 7 years, after 7 years the gift will become a a tax free gift.

Richdog · 20 Aug 2006 at 19:31

Von Luck said:
<Devil's advocate>

On the other hand, isn't there something slightly obscene in people aquiring wealth without having to work for it. Would it not be better to have such undeserved wealth spread across the entire population, rather than just building up and up with a monied few?

Obscene? Goodness grief of course not, this is the money your parent have saved to ensure you have the best life you possibly can... money to finance a good education for your children etc it's not as though the average person is going to receive millions is it? It's perfectly natural and I see no reason why we should have to be penalised for being sensible enough for providing for our children and grandchildren.

Definitions of obscene on the Web:

*designed to incite to indecency or lust; "the dance often becomes flagrantly obscene"- Margaret Mead

*abhorrent: offensive to the mind; "an abhorrent deed"; "the obscene massacre at Wounded Knee"; "morally repugnant customs"; "repulsive behavior"; "the most repulsive character in recent novels"

*lewd: suggestive of or tending to moral looseness; "lewd whisperings of a dirty old man"; "an indecent gesture"; "obscene telephone calls"; "salacious limericks" wordnet.princeton.edu/perl/webwn

Inheritance tax fits in there somewhere? :confused:

Brum Man · 20 Aug 2006 at 19:35

Raymond Lin said:
PET won't be IHT if the PET has been in the recipient's posessions for 7 years, after 7 years the gift will become a a tax free gift.

I know, sorry perhaps my sentence should have said:

"So why is the case with gifts for the purpose of PET's, which means that if a gift was made less that 7 years ago it will be liable to IHT with the rate of tax payable decreasing year by year from 40% down to 0% for 7 years and over, that tax is only payable on death of the one making the gift?"

cleanbluesky · 20 Aug 2006 at 19:36

http://forums.overclockers.co.uk/showthread.php?t=17616238

There are ways around inheritance tax that working class people usually wouldn't take up on...

it acts just as a method to keep money flowing back to middle and upper classes

Raymond Lin · 20 Aug 2006 at 19:37

Brum Man said:
I know, sorry perhaps my sentence should have said:

"So why is the case with gifts for the purpose of PET's, which means that if a gift was made less that 7 years ago it will be liable to IHT with the rate of tax payable decreasing year by year from 40% down to 0% for 7 years and over, that tax is only payable on death of the one making the gift?"

why is the tax is only payable on death?

Because it is? otherwise if it is payable on gift then it would be CGT. I think most people would like the option of elect it to be a PET in so to avoid the IHT.