h2g2 The Hitchhiker's Guide to the Galaxy: Earth Edition

Well, let's have a look shall we?

<<"The IHT threshold is £300,000, which means an estate pays 40% tax on all assets - including houses, shares, cash etc - over the threshold.">>

From the new generation point of view, I would consider 300,000 to be an obscene amount of money to come into posession of untaxed, compared to the unearned income allowance which is I think 4,000 a year. But then I don't necessarily share the view that people should be able to inherit their family home.

"One house free of tax" has obvious problems in that one house might be a mansion, while another might be a flat in the basement of a tower block. I don't know how you'd work that detail out.

Two things I would suggest, because they just seem sensible. This tax should be measured per recipiant, not per estate (although this probably means the threshold should be lowered a bit correspondingly for the tax to stay the same). The threshold should be linked to inflation or economic growth or some such.

I do agree however that multiple home owners charging extortionate rents and pushing the base housing prices up are the real problem for people trying to start out. I also agree that the genuinely rich need to be ensnared into paying their contribution somehow.

Incidentally (was this even in this thread), online a lot of companies selling in Europe use the Luxembourg VAT rate of %11. If they can get away with it, well, it seems we need some standardisation here.

Something else that I think needs pointing out is the erroneous idea of giving your child a head start via inheritance.
With current life expectancy, most of us are not going to inherit from our parents until we're approaching or even past retirement ourselves. At that stage our children will probably be well into adulthood & be parents themselves.
So perhaps we should be looking at the issue as funding our later years from inherited wealth rather than entering adulthood with a comfortable nestegg.

There is no need to raise taxes elsewhere to cover the £4bn that will be lost if Inheritance Tax goes. A little bit of efficiency will reap dividends.

In 1998, £24bn was spent on quangos - unelected collections of bureaucrats. That has risen to £167bn in 2006. Nearly one third of the tax take is being spent on bureaucracy.

We're paying taxes to people whose sole aim is to decide how to spend taxes.

http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2007/08/19/nquango219.xml

"We're paying taxes to people whose sole aim is to decide how to spend taxes."

And the alternative is...? Collect the tax then just spend it on the first thing that comes along? On the organisations that shout the loudest? (Churches, most likely <shudder&gt.

In an ideal world, "where should taxes go" would have an obvious answer. In the real world, it's one of the most complicated questions it's possible to ask, along with "what priorities should we set for health spending?" and suchlike.

SoRB

I have a suggestion that will cut down on public tax spending:

*whips out Schott's Almanac 2006 (yes, one year out of date, but the point stands)*

Prime Minister - total pay (parliamentary & ministerial salary) £183,932
Cabinet Minister - £133,997
MP - salary £59,095
Incidental Expenses Provision £20,000
Additional Costs Allowance (for those with seats outside London) £21,634

Member of Scottish Parliament - £51,709
Welsh Assembly Member - £45,232 (this annoys me because of the mediocre powers the Assembly has - it's nearly full MP salary but far less functionality).

I could quote more and more of these kind of expenses, along with very interesting tax statistics. The point is, what *does* an MP do with his salary? He certainly doesn't live off it, because he has various allowances for that (those I quoted were a selection).

There are really serious issues around not paying MPs properly.

One is bribery, another is the appropriate status of the position, and a third is allowing people from all walks of life (ie without inherited wealth or other sources of income) to become an MP.

The sums involved don't strike me as excessive - 25 year old merchant bankers will be earning more...

sprout

I disagree with scrapping inheritence tax although reform would be good.
If you have a good accountant (or a father who was a tax inspector like me) it is possible to minimize the amount of tax paid. Obviously it is not equitable that the wealthy or well-informed should be able to do this whilst average Joe Public pays more than they need to.

Nothing to add personally (for now), but here's an interesting link

http://www.bbc.co.uk/blogs/thereporters/evandavis/

Permalink: http://www.bbc.co.uk/blogs/thereporters/evandavis/2007/08/inheritance_tax_abolition.html

From Oto's post on previous page

.....don't you think it's a more than a little unfair that some people should undeservedly get a large amount of money passed on to them, while others get nothing?"

What?

"Undeservedly"? No, I do not. If I and my wife work bl**dy hard all our lives from the age of 16 (for both of us) then I damn well want the eventual fruits of that to go to our kids. If "Others" get nothing, then forgive me but I could not care less. Maybe their parents should have worked just as hard? Just a thought......


"......abolishing inheritance tax would be to further boost property prices. There is a limited supply, and the fact that some have unearned, undeserved extra wealth means they can pay more for property and push the prices out of reach of those who have only what they have earned for themselves."

There we go again. "Undeserved". I have no idea what other people work for, but we work hard for the betterment of our family. Our children 100% DESERVE the fruits of our labours. If that means they can afford ot put deposits down on property, then good for them. I personally had hard working parents that got refused (three times) a mortgage on a property costing £4000 back in 1970. They were poor. WE were poor. But by all of us working our socks off, my kids will hopefully be able to benefit very well when we are gone. What on earth is wrong with wanting that?

I am genuinely sorry for people who cannot get on the property ladder, but to be blunt, it is not my problem. My problem is ensuring MY family are taken care of and I make no apology for that.

"Is it so unreasonable to expect your children to make their own way in the world on their own merits? Because gifts of large sums of money or bequeathing houses with/without inheritance tax to your children does give them a head start, but it's a head start *over* other people who are not so fortunate in their parents' wealth."

I made my way in life by leaving school at 16 (as did my wife) and working. I left school with 1 CSE in Technical drawing - so I was technically "Thick". Four years later, I had got a degree in Aeronautical Engineering. I worked at it to earn it. I do not smoke, drink, own the latest car, buy designer clothes, go out much, want the 60" flatscreen TV or max out my credit cards. If that prudence means my kids get a headstart "Over" other people, then I am extremely pleased with that. Once again, I could not care less about "other people who are not so fortunate in their parents wealth".

"Allowing large sums of wealth to pass from parent to children without taxation perpetuates inequality down the generations, inhibits social mobility, and prevents any prospect of equality of opportunity"

I do not want my kids to be "Equal". I want to give them every single chance of making their lives a success thorough our hard work, becuase they come first, second and third in my life.

I guess that makes me a "Tory Cheerleader" then, doesnt it?

>>"Hold on. You earn money and pay tax on it. With what's left you buy a house and pay tax again. Then when you die, they tax you a third time on the same money?"

For most 'middle earners' whose estate ends up attracting tax, that's largely down to house price inflation, which they haven't paid tax on (in the way someone would pay Capital Gains Tax on the increased value of a second home).

>>"As most high earners can afford accountants to get around inheritance tax, and poor people never reach the threshold, this is just a triple tax on middle earners."

How many high earners really do get round inheritance tax? Do you have any figures?

(From McKay)
>>My mother refused to do any inheritance planning.

>>When she died her estate was split between her two children.

>>The taxman got the most.

>>This was 10 years ago - the money I inherited would not have bought my home.

Was the inheritance tax rate still 40% in those days?
As far as I can see, with the nil-rate band in 1997 being 215,000, unless there were complications, for the taxman to get more than either of two equal beneficiaries from a 40% tax over the threshold, that'd mean an estate of £1.29m.
(In thousands, 40% of (1,290-215) is 430, which is a third of the total.)
For any other threshold, with a 40% tax rate, the necessary estate size to have the tax take equal to the inheritance of two equal beneficiaries would also be (conveniently) 6x the threshold, so it would have been £900,000 in 1992 when the threshold was £150,000 (900K-150K = 750K. 750K*40% = 300K), etc.

http://www.hmrc.gov.uk/CTO/customerguide/page15.htm

If there were other reasons for the estate being unusually taxed, that wouldn't necessarily be the fault of inheritance tax.

The money I inherited was a six figure sum starting with 1, obviously my sister got the same - the taxman also got a six fugire sum starting with 1, but his second figure was higher.

I don't have exact figures to hand, but believe the actual tax rate was higher than 40%

<<"Undeserved". I have no idea what other people work for, but we work hard for the betterment of our family. Our children 100% DESERVE the fruits of our labours.>>

Eh, no they don't. They've done nothing to earn the fruits of *your* labours. *They* didn't do any work, did they? And the first £300,000 of your estate is tax free, that's about 12 times the average salary in the UK. Your kids will *get* the fruits of your labours. Or more likely the fruit of your unearned income, if, as I'd imagine, your house makes up most of the value of your estate. If your estate is worth £400k, then the govt. gets 10%. Hardly daylight robbery on wealth that you probably didn't earn, and they *certainly* didn't.


Obviously you care about your kids' welfare. So far so unremarkable, everyone else does. I hope to leave mine quite a wedge when I shuffle off. Even the Labour government is going to let them have quite a substantial pile of money before it taxes it.

What I do find quite interesting is your utter disregard for others (If "Others" get nothing, then forgive me but I could not care less. Maybe their parents should have worked just as hard? Just a thought......) Blaming kids for their parents? Jesus, that takes some nerve. The utter blinkered selfishness of your argument is something I find quite alien.

<>

I don't expect the wider view from you, and in terms of getting on with my life, I'll deal with my and my family's problems first too. The government, on the other hand, has to take *everyone* into account, not just your family. Shocking, isn't it?

Re Mackay's figures, assuming a 40-30-30 split, with him and his sister taking 60% between, then the government's figure would be the highest individual figure, but still making up a minority.

I thought the 40% higher-rate tax band had been around for quite some time? At least for income tax, it's been there since 1988/9.
It may be inheritance tax used to be higher than the high rate 10 years ago, but if so, I'm not sure where to find out about that.

Obviously, you didn't say *precisely* 10 years ago, and going into exact sums of your case would be rather personal.
However, talking about a generic case, *about* 10 years ago, the threshold was *about* 200,000, so whatever the tax rate was, roughly the first 100,000 each would have been clear of any tax.

With a 50% rate on anything over 200K, the three-way-split estate size would have been 600K.
With a 60% rate, on anything over 200K, the three-way point would have been would have been 450K (150K each)

Now, you had a particular example of 2 children, which did make the maths go one way. With a 40% rate, and *any kind* of decent threshold, it takes a *lot* of estate to end up with the taxman taking a third.
If it had been a case of 3 children, or 4, or 5, it'd be much easier to get to a point where the tax take was larger than any individual's share even with a rather lower tax rate, but that's not necessarily the fault of inheritance tax as such.

>>"Re Mackay's figures, assuming a 40-30-30 split, with him and his sister taking 60% between, then the government's figure would be the highest individual figure, but still making up a minority."

No - only the estate above the threshold is taxed.
With a 40% rate, you have a situation where the taxman gets 40% of the estate value (let's call it E) *above* the threshold (T), whereas two equal beneficiaries would each get 30% of the estate above the threshold, plus their half share of the threshold.
So Taxman gets 0.4(E-T)
Children get 0.3(E-T)+T/2
The larger the estate, the relatively more the taxman gets, until a break-even point is reached where everyone gets the same
For the amounts to be equal,
0.4(E-T) = 0.3(E-T) +T/2
-> 0.1(E-T) = T/2
-> E-T = 5T
-> E = 6T, so the estate has to be 6x the threshold for the tax take to be even.
With a current threshold of 300K, and a tax rate of 40%, that'd mean an estate would have to reach 1.8M before the taxman took a third of it, with everyone getting 600K each.

It's partly a trick of only choosing 2 beneficiaries, and the fact that the 40% tax is so close to the arbitrarily chosen 'one third' implied by having two beneficiaries that it takes such a long time for the sligtly imbalanced 40-30-30 split above the threshold to recoup the tax 'lost' on the estate below the threshold.
If you had 3 kids, with a 40-20-20-20 split above the threshold, so each kid only got it'd be a different story
Taxman still gets 0.4(E-T)
Children get 0.2(E-T)+T/3
so for breakeven,
0.4(E-T) = 0.2(E-T) + T/3
0.2(E-T) = T/3
3(E-T) = 5T
3E = 8T
E = 8/3 T
So a 300K threshold would give a breakeven point of 800K, everyone getting 'only' 200K each, and the taxman taking a quarter.

Yeah, I realised I forgot about the threshold.

Good Morning Pedro

May I respond to this?
What I do find quite interesting is your utter disregard for others (If "Others" get nothing, then forgive me but I could not care less. Maybe their parents should have worked just as hard? Just a thought......) Blaming kids for their parents? Jesus, that takes some nerve. The utter blinkered selfishness of your argument is something I find quite alien.

Firstly, I am not "Blaming" Children for anything. All I was saying was that IF a child does not recieve anything on the passing of their parents, then why should I care? We are making provision for ours by various means and being prudent in our spending - that is something everyone can do, surely? Obviously, there is not an absolute right to expect anything from your parents in terms of an inheritance, but if parents choose to forego certain things now in favour of providing later, where is the problem?

As for the "utter blinkered selfishness of your argument", if that is what you think it is then I cannot change your mind. Personally, I would rather describe it as blunt honesty.

Maybe the Government(s) have to take everyone into account after their gold plated pension scheme is protected and voting for their own pay rises - but that does not mean that I have to willingly hand over anything I can legally get away with.

Shocking, isn't it?

Morning Doc.

Given that this is a thread about Inheritance Tax, and not you discussing tax avoidance with your accountant, I think it's pretty reasonable to expect a discussion about the wider effects of the tax. The arguments in its favour are broad social ones; your post doesn't seem even to recognise that these factors exist. That's why I think your post showed a really selfish attitude. I don't think there's a person on hootoo who doesn't want the best for their children, however most people *can* see the wider argument.

Also, I'd really like to know how you think your children *deserve* your money. I really don't follow the logic.

And of course you may respond to this as well. This is a conversation forum after all.