Better this, or 100% Inheritance Tax?

[IvanV]

There's a nice Guardian article on how inheritance drives the perpetuation of social division. It also tends to be divisive within families. My mother and her elder sister fell out over arrangements as my grandmother aged and died.

Economists often suggest that the problem is taxing estates rather than taxing recipients. Under the recipient inheritance tax idea, individuals would have an inheritance receipt allowance, and be taxed on anything above that. That would also include anything coming from inheritance trusts, thus solving the trust tax by-pass problem.

An advantage of the recipient tax system is that it encourages spreading the legacies further, so it incurs less tax.

But, as the Guardian article points out, a lot of the problem is that families hand out parts of their wealth to their children well in advance of death, and taking that into account in inheritance tax is rather tricky. When does being a dependent on your parents end and taxable gifts start? Are we going to tax birthday presents?

Another thing that is missing in our tax system is any kind of explicit wealth tax, which would provide some further limited counterweight to families accumulating large wealth.

[Gfamily]

Ireland has a recipient inheritance tax - though it's a wider coverage as a Capital Acquisitions Tax, covering in life gifts as well as on death inheritances. There are different allowances depending on the relation between the donor and the beneficiary.

[monkey]

But, as the Guardian article points out, a lot of the problem is that families hand out parts of their wealth to their children well in advance of death, and taking that into account in inheritance tax is rather tricky. When does being a dependent on your parents end and taxable gifts start? Are we going to tax birthday presents?

In the US, gifts, even from family, over a threshold are taxed as income and this includes non money gifts like cars. But I imagine there's loopholes for rich people to use, because there normally is.

(All them cars that Oprah gave away gave people big tax bills that they might not have been able to afford.)

[Opti]

In the US, gifts, even from family, over a threshold are taxed as income and this includes non money gifts like cars. But I imagine there's loopholes for rich people to use, because there normally is.

(All them cars that Oprah gave away gave people big tax bills that they might not have been able to afford.)

A friend of mine once won the MTV MC battle. The prizes were an SUV and a Roc-a-Fella recording contract. He turned them both down. The SUV due to tax, the recording contract because he didn't want to sign to them. He's now a succesful Indy hip-hop artist in Miamia.

[dyqik]

But, as the Guardian article points out, a lot of the problem is that families hand out parts of their wealth to their children well in advance of death, and taking that into account in inheritance tax is rather tricky. When does being a dependent on your parents end and taxable gifts start? Are we going to tax birthday presents?

In the US, gifts, even from family, over a threshold are taxed as income and this includes non money gifts like cars. But I imagine there's loopholes for rich people to use, because there normally is.

(All them cars that Oprah gave away gave people big tax bills that they might not have been able to afford.)

It was around $14k per recipient per year in 2015. The main rich person loophole AFAIK is trust funds.

[bolo]

It was around $14k per recipient per year in 2015.

Actually before you pay any gift tax you can give that annual amount per recipient ($16k in 2022) plus an additional cumulative lifetime allowance of $12 million (in 2022).

Sadly my knowledge of this is entirely theoretical.

[IvanV]

A friend of mine once won the MTV MC battle. The prizes were an SUV and a Roc-a-Fella recording contract. He turned them both down. The SUV due to tax, the recording contract because he didn't want to sign to them. He's now a succesful Indy hip-hop artist in Miamia.

You'd think a free new car could be sold and would pay the tax and leave you quite a lot over. Interesting that he took part in a competition where he didn't want the prizes, the publicity must have been more valuable.

[IvanV]

It was around $14k per recipient per year in 2015.

Actually before you pay any gift tax you can give that annual amount per recipient ($16k in 2022) plus an additional cumulative lifetime allowance of $12 million (in 2022).

Interesting to learn that there are gift taxes, even in the even more unequal US. Though these allowances sound generous. And the trust fund is the egregious avoidance issue, as pointed out.

I was very interested to learn that the recipient-based inheritance tax has actually been implemented in practice in Ireland. I must find out more about that.

[Opti]

A friend of mine once won the MTV MC battle. The prizes were an SUV and a Roc-a-Fella recording contract. He turned them both down. The SUV due to tax, the recording contract because he didn't want to sign to them. He's now a succesful Indy hip-hop artist in Miamia.

You'd think a free new car could be sold and would pay the tax and leave you quite a lot over. Interesting that he took part in a competition where he didn't want the prizes, the publicity must have been more valuable.

Yeah, and in Hip Hop 'Rep' is a big thing.

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

[dyqik]

It was around $14k per recipient per year in 2015.

Actually before you pay any gift tax you can give that annual amount per recipient ($16k in 2022) plus an additional cumulative lifetime allowance of $12 million (in 2022).

Sadly my knowledge of this is entirely theoretical.

I understood the lifetime allowance to be a maximum for the sum of per year per recipient amounts - so you couldn't give 100 people $16k a year for 50 years.

But it wasn't relevant when I was looking it up, so I might be wrong.

[bolo]

I believe the cumulative lifetime exclusion is in addition to the annual per-recipient exclusion, but regrettably I too have no first-hand experience with that.

I do know that certain things don't count as a gift, in any amount, e.g. paying someone's college tuition. Which is nice, because paying BoloJr's tuition is painful enough without having to pay tax on top of it.

[noggins]

The US taxes prizes as income. Ophra's cars were prizes not gifts.

US Gfts are taxed but theres a yearly exclusion of 16k per receiver and a 12m$ lifetime exclusion - the same as their inheritance tax threshold.

UK inheritance taxes are high and thresholds low.

[monkey]

UK inheritance taxes are high and thresholds low.

Inheritance tax in the UK affected 3.76% of deaths in the 2019-2020 tax year (latest figure, as far as I can tell, clicky
). That doesn't seem too high a threshold to me.

What do you think the threshold/rate should be?

[noggins]

UK inheritance taxes are high and thresholds low.

Inheritance tax in the UK affected 3.76% of deaths in the 2019-2020 tax year (latest figure, as far as I can tell, clicky
). That doesn't seem too high a threshold to me.

What do you think the threshold/rate should be?

Whatever im going to inherit - or leave - whichever is higher, plus a 25% margin.

[Lew Dolby]

If one half of a couple dies and leaves everything to the survivor (including their allowances). Then the survivor dies and leaves their house to a son or daughter, the tax-free allowance is £1million. Not that small to my mind.

[Did F-i-L's probate a few months ago. - NO he didn't leave anything like that !! As if !!]

ETA - England's laws there

[monkey]

UK inheritance taxes are high and thresholds low.

Inheritance tax in the UK affected 3.76% of deaths in the 2019-2020 tax year (latest figure, as far as I can tell, clicky). That doesn't seem too high a threshold to me.

What do you think the threshold/rate should be?

Whatever im going to inherit - or leave - whichever is higher, plus a 25% margin.

That's not a very helpful answer. That could be a very low threshold or a very high one, depending on what I decide to assume about you.

[noggins]

Its a perfect answer. I want some other bastards to pay tax rather than me.

[IvanV]

UK inheritance taxes are high and thresholds low.

Inheritance tax in the UK affected 3.76% of deaths in the 2019-2020 tax year (latest figure, as far as I can tell, clicky
). That doesn't seem too high a threshold to me.

What do you think the threshold/rate should be?

The rate is 40% and the threshold is £325k. £325k is barely much more than the UK average house price. So on the face of it, it is a bit surprising that so few deaths lead to an inheritance tax charge. People who leave most of their stuff to their spouse can do so without tax, so up to half of deaths can avoid tax in that manner. But that is only a delaying tactic. You can increase the threshold to £500k if you leave your house to offspring to live in, but I doubt that is so common. You can also avoid tax on bequests to charity, but large bequests to charity are unusual.

I don't know what proportion of people need to fund going into care, and for how long they typically go into care. That can cost £100k/yr for full service care for those who can do nothing for themselves any more. That would clearly reduce the value of inheritances. But I don't know that many people who have gone into care for more than the last few months of their life.

So I would tend to suspect that the reason so few people pay inheritance tax at death is that there is quite a lot of inheritance tax planning and early transfer going on, so that in a lot of cases there isn't much left that is taxable when the time arrives.

[Tessa K]

UK inheritance taxes are high and thresholds low.

Inheritance tax in the UK affected 3.76% of deaths in the 2019-2020 tax year (latest figure, as far as I can tell, clicky
). That doesn't seem too high a threshold to me.

What do you think the threshold/rate should be?

The rate is 40% and the threshold is £325k. £325k is barely much more than the UK average house price. So on the face of it, it is a bit surprising that so few deaths lead to an inheritance tax charge. People who leave most of their stuff to their spouse can do so without tax, so up to half of deaths can avoid tax in that manner. But that is only a delaying tactic. You can increase the threshold to £500k if you leave your house to offspring to live in, but I doubt that is so common. You can also avoid tax on bequests to charity, but large bequests to charity are unusual.

I don't know what proportion of people need to fund going into care, and for how long they typically go into care. That can cost £100k/yr for full service care for those who can do nothing for themselves any more. That would clearly reduce the value of inheritances. But I don't know that many people who have gone into care for more than the last few months of their life.

So I would tend to suspect that the reason so few people pay inheritance tax at death is that there is quite a lot of inheritance tax planning and early transfer going on, so that in a lot of cases there isn't much left that is taxable when the time arrives.

The care home my parents went into cost 5k a month. My dad was there for 8 months in 2019, my mum for 5 in 2021. They both needed nursing care, not just residential. It was a fairly good one but not top of the range and not in London (or any city) where costs are higher.

Once someone moves into end of life care, the local council and NHS trust pay all fees. I didn't know this with my dad so we only got the free part right at the end. With my mum it was about 6 weeks. Care homes won't always tell you this because they get a lower rate. I had to tell them to do it for my mum.

[Gfamily]

The rate is 40% and the threshold is £325k. £325k is barely much more than the UK average house price. So on the face of it, it is a bit surprising that so few deaths lead to an inheritance tax charge. People who leave most of their stuff to their spouse can do so without tax, so up to half of deaths can avoid tax in that manner. But that is only a delaying tactic. You can increase the threshold to £500k if you leave your house to offspring to live in, but I doubt that is so common.

Unless it's changed, when an inheritance goes to a spouse, so does their threshold; so when the surviving spouse dies, they effectively get a double allowance on their estate - which thus increases to £650K.
It seems likely there can also be a transfer of the residence nil rate from a pre-deceased spouse, so that would add a potential max of £350,000 assessed on the value of their property.

[Lew Dolby]

Again. Ifthe first to die leaves everything to the survivor, the sutvivor gets the HTax allowance and the house allowance to pass on when they die. That comes to exactly £1million at the moment in England. Two HTax allowances and two house-to-offspring allowances. Scotland may be different.

ETA and if the estate is below, there's no need to involve HMRC before applying for probate. The Probate Office do it. [Since 01 Jan 2022]

[lpm]

You can't be serious?

If a married couple in England die with a £1 million house they don't have to pay any inheritance tax? What an insane country.

[Tessa K]

The rate is 40% and the threshold is £325k. £325k is barely much more than the UK average house price. So on the face of it, it is a bit surprising that so few deaths lead to an inheritance tax charge. People who leave most of their stuff to their spouse can do so without tax, so up to half of deaths can avoid tax in that manner. But that is only a delaying tactic. You can increase the threshold to £500k if you leave your house to offspring to live in, but I doubt that is so common.

Unless it's changed, when an inheritance goes to a spouse, so does their threshold; so when the surviving spouse dies, they effectively get a double allowance on their estate - which thus increases to £650K.
It seems likely there can also be a transfer of the residence nil rate from a pre-deceased spouse, so that would add a potential max of £350,000 assessed on the value of their property.

I'm told that is the case with my parents' estate. I'm still waiting for the damn lawyers to sort it all out. So slow.

[Woodchopper]

You can't be serious?

If a married couple in England die with a £1 million house they don't have to pay any inheritance tax? What an insane country.

A married couple in England with a £10 million house only pay inheritance tax if they lack the foresight to transfer ownership seven or more years before they die.

Ivan is correct. It’s easy to avoid paying anything. It’s odd that any inheritance tax is paid at all. I assume it comes from people who died much younger than they expected, people who dislike their descendants or people who want to give money to the government.

[IvanV]

It’s easy to avoid paying anything. It’s odd that any inheritance tax is paid at all. I assume it comes from people who died much younger than they expected, people who dislike their descendants or people who want to give money to the government.

There's another category, which is people who mistrust their descendants. Those who assess, correctly or otherwise, that if they give too much away too soon, their children, much as they love them, will abandon them, or mismanage the money. We have a notorious case in our family where the parents should have been a bit more mistrusting, and had no shortage of evidence arguing for caution.