I continue to be bemused by some arguments put forward by those who argue against Inheritance Tax. In particular I am completely baffled by the argument that an average home should be free of Inheritance Tax when almost no one who inherits a house moves into it. Let's be clear: houses in the estates of deceased people simply represent cash in 98% of cases.
But I thought I'd explore this some more in a video:
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I can see some parts of your arguments, but do feel that the 40% tax rate is too high. Also, I think your argument about passing on the family home no longer being relevant is changing. 22 Forsythea Avenue may not be the “ancestral family home” but given the ever extending length of mortgages ths days the sale of the family home to help pay off sons’ and daughters’ ever extending mortgages perhaps changes the landscape. Also, to take a counter argument to you, if I have worked to pay for my house why should the proceeds go to the Government – what have they done to deserve it. Thye have already had their share of the tax from income tax, VAT, and numerous other taxes. Surely if I have worked o purchase the house wih my money, I should be able to chose what I do with that money – to the Government – I do not think so.
Is there a text version of this talk? It is SO annoying having to listen and watch the slow moving presentation of ideas padded with rhetoric.
I haven’t had the chance to hear the arguments in favour of inheritance tax… Consider this real situation and tell me what is right and good…. a man and woman work all their life, save some GBP40,000 and manage to purchase their own home. The man dies. Everything is left to his wife – no longer in work. They have four children. The wife dies. The assets are split between the children, except two of them inherit the house because they still live and cared for mum there. Unfortunately, the house is in London and the valuation says its worth GBP 350,000. At a tax limit of 300,000 hey have GBP 90,000 tax to pay, that is some 36,000. The 4 children now have only 1,000 each. They were late in filing and encountered a tax penalty, actually meaning that they each owed money – just so that the 2 children could carry on living in the house where they cared for mum for years (mum who never drew upon government assistance but receive full time care from 2 of her children).
Even worse… the house was valued at 400,000 and they now have assets of 440,000. They need to pay tax on 140,000 that is they now don’t have enough money – all combining their shares – to pay the tax. They have to sell the house… and worse… when it goes to market it only gets the 350,000 that the first valuer said.. they have a tax bill on 140,000 to pay AND have lost the house AND can’t afford two separate mortgages on new homes….. they are destitute…. what is right and good? nothing.
ChangedBaby
Your example is so extreme that it is absurd
And why should we have a tax system that assumes children should inherit a home when likely to be well into middle age (as your example implies) without ever having taken responsibility for themselves?
Is encouraging dependency in this way really beneficial?
I think such extreme example (and it is extreme) is not the basis for designing a tax system.
Richard
Hi Richard,
Where do you stand on the case of the Burden sisters? When one of them dies, the house will have to be sold to pay IHT, despite the fact that they have looked after each other and saved the state a good deal in care costs, and the seller will be old and frail and surely doesn’t deserve the added burden of selling her home as well as losing her sister.
My view is that cases like this should be treated more sympathetically. I would extend the exemption for transfers between married couples and civil partners to cover those who have lived together for longer than x number of years, including members of the same family.
That said though, as you say, people who want to keep their family home on the death of elderly parents, BUT already have their own home, don’t need two houses. If they want to move into the family home, could they not sell their existing property?
M
M
This case is not that unusual – and not far fetched unlike the one noted above.
I have sympathy with the case of genuine cohabitation by siblings with no other property. I also have sympathy with the carer scenario, but in that case I think a need for care has to be proven, not just a lack of willing to flee the next.
How to deal with this? I’d suggest it’s simple. The tax is charged and left as a charge on the property for payment when disposed (inclduing by way of gift whether on death or not to prevent avoidance). Interest should not be charged: the state can afford the loss.
This keeps the principal of the tax intact but prevents cash hardship.
Richard
Hi Richard,
So in other words, the survivor would only pay tax when they no longer needed the property to live in and either sold it, gave it away, or died?
Sounds completely fair and reasonable to me because nobody loses out. The survivor doesn’t have to sell their home and the state will be paid the tax sooner or later.
M
Gordon’s point was not answered… I too would like an explanation to what is really a method of double taxation! You’re paying money when you’re earning it and then again when you’re distributing it worse still it is taxed again as income to those receiving it. This is madness.
Novice
I have answered Gordon’s point countless times on this site: people have not paid for their own homes. Inflation in land prices has paid for most houses now being passed on death in the UK.
Apart from the fact that double taxation is normal as a matter of fact, in the case of houses there has usually been no inflation, just untaxed gain. That makes the tax a single, one off fair charge in the main.
And I can live with that.
Richard
My 2 brothers and I are about to inherit from our Father’s estate. The estate is worth approx £425,000. Do we pay inheritance tax on this first before it is split 3ways, or will it be split 3 ways first, thus making us exempt from I tax?
Penny
Penny
Inheritance Tax is charged on the value of the estate and not on the amount any one person receives from it. As such you do look to have a potential liability. If you need advice I recommend the the Tax Advice Network. I have no commercial link with them. http://www.taxadvicenetwork.co.uk/index.asp?PageID=10&topID=4
Richard Murphy