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

Do you agree/disagree with Conservative policy group’s proposal that inheritance tax should be scrapped?

Personally, I would take any step necessary to make sure I avoided having to pay a penny, or indeed make sure my children would not have to when we die. Steps have already been taken with my 78 year old Dads home to protect it.........

Is that really evil or just prudent steps to take?

One should take all legal steps to minimise the amount of tax one pays. One should then take all steps necessary to ensure that the tax one does pay reaches the government with the minimum of fuss. The first is prudence, the second is good manners.

I believe there should be an inheritance tax. If your family is rich enough to have to pay it, or to have to take inconvenient steps to avoid it - good for you. The rich *should* be taxed more. I speak as a payer of higher rate income tax. I pay it with a skip in my step and a song in my heart because I know that I'm lucky to be earning enough to make it an issue.

SoRB

Wanna pay mine for me too then SoRB. Then you could skip higher and sing louder

I'm not opposed to the concept of inheritance tax, per se - but I do think it should only affect people rich enough to "deserve" that level of taxation.

From what I understand, the current threshold is such that more-or-less just owning a house (with the ridiculous inflation on house prices) is enough for you to be liable, which doesn't seem right at all. It means that you effectively can't inherit a house, because you'd need to pay the tax-man his cut.

That said, I don't know how you define what the right threshold is for something like that, which is maybe why the Conservatives are considering just scrapping the whole thing rather than working it out.

It seems only a small percentage of estates actually attract inheritance tax at present, however, there are some confounding factors.

I'd guess The main confounding factor is that tax isn't payable on jointly-owned assets, so even if the threshold was much lower, with most people being married, and usually one person dying first, the other spouse inheriting would usually escape tax. If someone dies and their surviving partner remarries, it's possible for property to pass through multiple deaths and estates without being taxed.

A figure of 6% of estates being taxed might be be rather higher if thinking only of people inheriting their parent's wealth.

Still, for the majority of 'not really rich' people whose estate will end up being taxed, that's largely down to escalating property prices rather than purely down to their tireless work.
As the property is no longer someone's main residence when they're deceased, maybe the inheritance tax threshold could just be raised much higher, but any property in the estate could just be made subject to Capital Gains Tax, as would a living person's second home if sold.

>>"That said, I don't know how you define what the right threshold is for something like that, which is maybe why the Conservatives are considering just scrapping the whole thing rather than working it out."

No, the reason they're talkinmg about scrapping it is because they think it will attract votes, especially if they can convince people it simply won't hit, or who it will barely graze that *they* are at risk of being heavily taxed.

If we really get to the point where a large minority of estates start hitting the coming £300,000+ limits due to property prices, we're going to have a bigger problem in the country than the level of inheritance tax.
The problem will be huge numbers of living people being unable to afford to live anywhere.

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?

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.

That's a bit that has me a bit confused ... Just how many times is a body expected to pay taxes on the same earned dollar or quid? Even after death, they take another slice? In brief, I think any 'inheritance tax' idea is simply wrong, as it is nothing more than one more layer of gouging by the Tax Man.

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.

Everyone should be allowed 1 residence tax-free, the property around it should be taxed at 30%, and each other house owned taxed at 5% more than the last with the second starting at 35%.

There's a good article about inheritance tax in the Guardian - worth a read. It confirms the view expressed here that it's not the rich who pay it, but the richer middle class.

But it also makes the point Elrond makes. It's not a second (or third tax) on income earned through work, but on gains through property price increases - it's a tax on property, not on income.

http://politics.guardian.co.uk/economics/story/0,,2151057,00.html

But it's same old, same old, from the Nasty Party. More tax cuts for the rich/ very comfortably off. If we can cut taxes, why not cut VAT on essential items, or increase the personal threshold before tax is paid?

I reckon they're going for the increasingly numerous grey voters, who may be worrying about passing on their assets to their children.

Sounds good to me. Certainly the threshold should be raised, or type of assets taxable should be changed. After all, any resulting capital will produce taxes from being spent, or by earning interest so the government will still get a cut.

It's perhaps very selfish of me, but here is my view. I worked hard enough, 21 years serving my country in her uniform, and another decade since. Scrimping and saving as best I could, I managed to buy into a house, which will take me until I am in my early 60's to truly own. Taxes were fully and properly paid on every dollar earned, so I have done my bit in that reguard.

Come the day that I go ... I have one child who now has 4 of her own. I know that I cannot make her independently wealthy, but I think it would be nice if I could bequeath her something of value. If she inherits a house and property that her family cannot fit into, she not only finds herself with a property to sell, 1,350 miles from where she lives, but having to meet the Tax Man right NOW for his slice. He might just as well be sitting in our living room on Christmas morning, and making a tally of gifts from parent to child ... and writing tax slips for things beyond a certain value.

As to the notion of taxing against appreciation of value over the years ... If I give my daughter a couple of silly comic books that I bought some time ago, ... Something called 'The Amazing Spiderman', 'The Incredible Hulk', 'Thor', 'The Fantastic Four' ... I that same Tax Man going to be standing by and declare that she could not have bought them (long before she was born) and tax her for increased values over the decades?

At the risk of repeating what I said on another thread, the idea of inherited wealth sounds reasonable when viewed from the point of view of someone who has worked hard all their life and wants to pass on some of their wealth to their children.

However, it looks rather different from the point of view of the next generation. Given that no-one deserves to have rich parents, poor parents, or comfortably off parents, 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?

And the wealth of others does affect everyone, because we operate in a market. The Guardian analysis argues that one of the main impact of 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.

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.

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.

But then that's what the Tories and their cheerleaders want, isn't it? Or is there some other interpretation?

Good post Otto.

Two related observations:

There are good reasons for an inheritance tax. It performs a function which I think most would agree is broadly a good thing (reducing inequality). In fact, here's a thought: a rampant capitalist sucks in a load of money and leaves it to his child. Now, that child will have a huge advantage in life, which is against the capitalist's principles of fair competition. Hmm, not really sure whether that's relevant/sensible...anyway, on to the second.

It is often the case that inheritance tax does not fulfil its intended function (which people have already talked very well about in this conversation).

Yup, good post.

Except it misses the point that this tax was aimed fairly and squarely at the rich but is increasingly hitting the ordinary man instead. The Queen Mother didn't pay it but my gran did. Those most able to afford to pay are those least likely to actually pay. As such it is a flawed tax, albeit one that generates huge feelings of inequity.

To put this in perspective, I've read elsewhere that it generates £4bn out of total tax revenue of £610bn. The country won't fall down if it's scrapped.

Perhaps some of it could be recouped from the approx £20bn spent annually on the *extra* one million civil service positions created since 1987?

Otto "But it's same old, same old, from the Nasty Party. More tax cuts for the rich/ very comfortably off. If we can cut taxes, why not cut VAT on essential items, or increase the personal threshold before tax is paid? "

Which is exactly the reverse of what that nice Mr Brown did in his last budget. He scrapped the lowest rate of tax and made the poor worse off.

Scrapping inheritance tax would only create a housing shortage if it allowed individuals to build up a pool of houses - thus my suggestion for everyone being allowed 1 tax free house.

There are lots of things that could be taxed that wouldn't affect the ordinary man - company directorships would seem to offer some opportunities - what about money gained from endorsements as another suggestion. Bigger taxes on flying, and on the second car registered to an address.

Tax whats above the baseline not below - as for reducing VAT - that would not go down well with our European friends, they're not happy we zero rate books and newspapers and children's clothes.

Bigger taxes on flying? What, like the 100% rise at the last budget?

Allied to the commitment to new runways to increase the number of flyers seems to be a very effective cash generator.

Global Warming? What? Where?

What about a tax on aviation spirit ?

I really don't care if trans-atlantic flights won't land here any more.

I am of the opinion there should be greatly increased tax on owning second homes. That would fit in with the idea of having one home tax-free. People have a right to one home; two is a gigantic privilege considering the current situation.

"Except it misses the point that this tax was aimed fairly and squarely at the rich but is increasingly hitting the ordinary man instead. The Queen Mother didn't pay it but my gran did. Those most able to afford to pay are those least likely to actually pay. As such it is a flawed tax, albeit one that generates huge feelings of inequity."

No it doesn't. I made exactly this point in post 10. But perhaps I wasn't clear - my point in post 13 is that there are very serious problems with the notion of inherited wealth. And of course this applies more to the super-rich than those whose wealth is mostly in their (one) house. I'd much rather that the super rich were taxed properly (for a change) than those who are comfortably off. But that's absolutely not what the Tories are proposing.

"To put this in perspective, I've read elsewhere that it generates £4bn out of total tax revenue of £610bn. The country won't fall down if it's scrapped."

So what services get cut back to pay for it, or what taxes get raised elsewhere? And to repeat, if we can cut taxes, I don't see any good reasons to cut taxes for those who are comfortably off rather than for the poorest.

Having re-read the Guardian article, it seems that "Only 10 years ago the number of IHT payers was not 10%, but around 3%, raising £1.6bn. Research for one accountancy firm reckons 15% of estates will pay by 2010."

Even allowing for the fact that this is distorted by tax evasion and tax avoidance by the super-rich, only 10% of estates pay IHT. So if you or a relative ends up paying this, they they're hardly an "ordinary man". Whether you know it or not, whether you feel it or not, wealth plus property prices rises have made your estate rich.