The Financial Times has reported that the average middle-class family expect to leave £335,000 to their offspring.
If this were to only come from one family member, then that leaves an average inheritance tax bill of just £4000.
Two thoughts follow. First, why does inheritance tax have such limited impact? Second, how has this tax been so successfully exploited by the right when he so obviously irrelevant to most families?
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“how has this tax been so successfully exploited by the right when he so obviously irrelevant to most families?”
Because people vote for the tax policies that affect them as they would like to be, rather than as they are. Most people believe they will earn more in future and will have a nice house and some savings to pass to their kids. Truth is, they won’t. If you aren’t earning big bucks by your thirties you never will and if you have a house you’ll have to sell it to pay for 20 years of full time care while your body slowly packs up. But reality is too depessing so people vote for their dreams.
But surely the average family has 2 parents, so they will be paying nothing at all since each parent gets the £335,000 allowance.
The title is logically incorrect. The fact that average middle class inheritance is 335k does not automatically lead to an average bill of 4k.
Consider the case of inheritances of 300k, 335k, 370k
Average inheritance : 335k
Inheritance tax amounts : 0k, 4k, 18k
Average iht: ~7.3k
This is using a fairly small range of values – I would guess the true average to be much higher
@Carol Wilcox
Bang on Caril
I overstated the likely liability
James does so massively
“But surely the average family has 2 parents”
But in how many families do both parents die at the same time?
One parent dies, they generally leave everything to their spouse, IHT free. When the send parent dies they only have the one allowance.
Many times this can be locked up in firly illiquid assets, especially without some estate planning which most average middle class families won’t have. So the tax payment can be difficult to raise.
This is even more true for those land rich families
IHT is effectively a tax on assets that have already been taxed when they were earned.
The reason they are relevant politically is around 15 years ago, even ricj middle calss families didn’t pay anything from it.
Surely this is a case where you need to look at the median, rather than the average. I doubt if middle class families outside the top quartile pay any inheritance tax at all, probably only the top decile do. If you pick a middle class family at random, I would bet that their estate will never pay inheritance tax.
Creg, the IHT nil rate band is now transferable, so a surviving spouse effectively has two NRBs.
@Creg
Arguments are always more credible when they are correct. First of all, it is commonplace in the United Kingdom and elsewhere for transactions to be subject to more than one type of tax. I pay income tax on my earnings and then pay VAT when I spend the next some left over. why should inheritance tax be any different? Secondly, the reality is that the vast majority of sums subject to inheritance tax have not already been taxed. They are inflationary gains on housing and capital gains which are not taxed on death. Your argument is completely hollow.
Richard, here here re Creg: he clearly knows nothing about IHT at all.
Carol is right – and I’d be shot if (as a Private Client solicitor) I let a family pay IHT on the basis of c. £335,000 net wealth.
IHT is, for anyone with 7 years head start on death (or in many cases, just 2, and if you are very clever, a few months), an entirely voluntary tax.
When the tories put the cumulative wedded threshold up to £2m, as they will I expect promise to do as a pre-election sweetener, IHT receipts will disappear altogether, because people with that money always pay others to ensure no IHT is paid.
And those lost receipts will have to be made up somewhere…
I think instead the gubmint needs to look at either reducing the generous exemptions for APR/BPR, increasing the rate, or decreasing the threshold in light of transferability between spouses.
We are, after all, mostly talking about a vast bonanza of unearned residential property wealth that we won;t see again, maybe ever.
@Patrick Osgood
Almost everyone over 45 shares in that bonanza
It has a long time to go to work out of the system
IHT has a role for a long time to come – or it needs to be replaced with a tax that does work
Inheritance should surely be treated as unearned income to the recipient and taxed accordingly.