Darling doubles Inheritance tax threshold

[Buzzer]

the incentive is the realisation that you would be well pushed to have any sort of quality of life if you just had to rely on the state pension. When you get to my age, these are things that you get to think about.

see my post above. Buy your own portfolio of shares or invest elsewhere. Pensions are not attractive investments for the future.

 

[Buzzer]

.........................so you then invest in property eg rentals..................thus helping to increase property prices..................................which raises the cost of living.........................................reducing our quality of life.......................................................

touche!

By the way. As the most influential institutional shareholders in FTSE companies are pension schemes they have forced companies to increase dividends to counter the reduction in dividend income because it's now taxed.

Increasing dividends reduces the money companies can retain for growth and re-investment. Not good for business. Short-termist.

 

[Alex Alex Dawson oo! oo!]

What, you mean the same dividends that are used to keep those pension funds at a level at which they can actually fund their members retirements? 'Cos they only started reneging on their commitments after Gordon made his cash grab, I wonder why...

... and no, I agree, there wouldn't have been a problem if companies hadn't been allowed to take contribution holidays by the Tories - it was a bloody stupid idea to let that happen, and still is.

1) My point on share dividends is whether it is equitable for these to be paid tax-free to pension funds when the original mamber/company contributions which were used to buy the shares were tax-free?
It seems to me that this is a case of pf's having/wanting their cake and eating it but, if it does cause a real funding issue then why not raise the member contribution rates accordingly?
2) Don't accept the point about companies 'reneging on their commitments' only after the dividend tax credits were withdrawn. From my own experience and knowledge companies were looking at the funding of final salary schemes in the early 1990's due to life longevity etc. My own employer at the time (SmithKline Beecham - now GlaxoSmithKline) closed its final salary scheme to new members in April 1993. Corporate cynic that I am, despite now being an MD, I suspect that companies are using this as an excuse to close down final salary schemes; I'd be less cynical if the level of corporate funding being paid into 'replacement' money purchase schemes were the same.
3) Agree totally about contribution holidays but I don't remember any great fuss being made by companies, fund trustees, members etc at the time although there were some low level complaints from the TU's. Could be a fair bit of hindsight here in saying the 'holiday' contributions should have been retained in the company for a 'rainy day' but I guess they'd have been liable to corporation tax. Might be interesting to have seen what the fund actuaries at the time had to say?

 

[Curious Orange]

I'm taxed at 11% on my income that I choose to pay into a pension scheme. My employer is also taxed with er ni.
I then pay into a pension scheme which earns dividends. I'm taxed on this.
I then buy an annuity with my (taxed) pension pot. I pay PAYE on this "income".

That's 3 times by my reckoning. Where's the incentive?

Say I chose not to be in a pension but bought the shares myself - I'd be taxed for PAYE and NI on my gross pay and then with my net pay buy some shares. These are taxed as dividend income. I'd be in exactly the same position as above wouldn't I?
...And I'd be able to pass on the shares to my next of kin when I die. Something I can't do with my annuity.

In short Gordon has killed any incentive to invest in pensions.

Don't you still pay slightly less tax if you pay into a pension scheme, which the government then gets back through PAYE on the annuity?

I used to work in annuities btw, and it isn't uncommon for people to get back more in income than they paid into the pension pot over the lifetime of the annuity.

 

[Moshe Gariani]

As I uderstand this, if your parents house is worth say 350k, one dies, the house transfers to the other with no Inheritance tax...

If the other parent then dies, the house is still worth 350k and the house is 50 /50 to the two remaining siblings, do the siblings pay inheritance tax or not?

under the old system (£300K threshold) the sibs would have paid £20K tax... under the new Labour policy of a DOUBLED threshold they will pay no tax

 

[Dave the OAP]

see my post above. Buy your own portfolio of shares or invest elsewhere. Pensions are not attractive investments for the future.

If you are in an occupational scheme that is totally impracticable isnt it!

I pay 6% of my gross income and my company pay 10%. I cannot afford to spend 16% of my income into a share scheme, and I am sure my company would tell me what orrofice I could stick my suggestion that instead of paying into a scheme, they should instead give me the money so I could invest it!

 

[Dave the OAP]

under the old system (£300K threshold) the sibs would have paid £20K tax... under the new Labour policy of a DOUBLED threshold they will pay no tax

good old gordon!!!

 

[Alex Alex Dawson oo! oo!]

Yes to PAYE but the chancellor taxes your income BEFORE pensions deductions for NI.

Great, isn't it?

But you don't pay employee's NI @11% on your entire income do you? Isn't here an upper band limit?

 

[Buzzer]

But you don't pay employee's NI @11% on your entire income do you? Isn't here an upper band limit?

Yes. But the average wage earner doesn't hit the upper limit.

 

[Buzzer]

under the old system (£300K threshold) the sibs would have paid £20K tax... under the new Labour policy of a DOUBLED threshold they will pay no tax

True but Alistair has just given people what they already have.

Parent one dies and gifts half the house to the children (no tax to pay). Parent two dies and remainder of house goes to children (no tax to pay).

Smokes and mirrors. Smokes and mirrors.

 

[The Large One]

True but Alistair has just given people what they already have.

Parent one dies and gifts half the house to the children (no tax to pay). Parent two dies and remainder of house goes to children (no tax to pay).

Smokes and mirrors. Smokes and mirrors.

So what's the difference between what George Osborne intended and what Alistair Darling announced? Aside from the threshold.

 

[Alex Alex Dawson oo! oo!]

But you don't pay employee's NI @11% on your entire income do you? Isn't there an upper band limit?

Yes. But the average wage earner doesn't hit the upper limit.

OK so it's no employee NI (Class 1) payable on up to £100pw, then 11% on up to £670pw and 1% on anything over that.

Sorry, thought you were originally quoting from personal circumstances though - hence my question.

 

[Buzzer]

So what's the difference between what George Osborne intended and what Alistair Darling announced? Aside from the threshold.

The threshold is the key. An awful lot of people have assets in excess of £300k very few have assets in excess of £1m. You can't gift the entire house to children whilst parents are living there or you will get taxed on notional rental value.

It's very hasty and ill-prepared thinking by the Govt. According to some on here, the Govt could sit back and have 2 years to come up with something to thrash and trash the Tories plans. Strange they announced something the following week. An impartial observer might even view it as panic.

 

[The Large One]

The threshold is the key. An awful lot of people have assets in excess of £300k very few have assets in excess of £1m. You can't gift the entire house to children whilst parents are living there or you will get taxed on notional rental value.

It's very hasty and ill-prepared thinking by the Govt. According to some on here, the Govt could sit back and have 2 years to come up with something to thrash and trash the Tories plans. Strange they announced something the following week. An impartial observer might even view it as panic.

Hang on, I'm confused. Are you saying that NOTHING has changed?

In your example, you said that Parent one dies, the children inherit half the estate. Just for the sake of argument, let's say the estate is £800k in total. So Parent two (who doesn't pay IHT upon spouse's death) and kids inherit £400k apiece (taking 'the kids' to mean one notional person here). Which means that, because it is below £600k (the threshold announced yesterday), there's no tax to pay.

When the second parent dies, the remainder of the esate - still £400k for the sake of this argument (setting aside inflation etc) - goes to the kids. Again, no IHT.

Bearing in mind that - and I think I'm right here - there has to be seven year gap between inheritance of estate and death for there also to be no IHT tax (this is where Trust Funds are set up here)... nope, I'm confused.

 

[London Calling]

to me its now more above board, and the ordinary joe does not have to resort to accountants/lawyers to find ways around the tax.

If nothing else 10/10 for that.

 

[Barrel of Fun]

It is effectively the same, isn't it?

If a homeowner has a house worth £600k. Upon his death, the family would be liable to pay 40% of £300k. Now, there would be no IHT to pay on the £600k house on his death. The spouse would not have to sell the house to pay the bill or take out a bridging loan.

However, if he was to 'own' half the house and his spouse own the other half of the £600k house, then he would not be liable to pay anything anyway. As his £300k would fall within the current threshold.

The only change appears to be to safeguard the remaining spouse.

When the final parent dies, then the £600k is liable to 40% above £300k.

 

[Buzzer]

Hang on, I'm confused. Are you saying that NOTHING has changed?

In your example, you said that Parent one dies, the children inherit half the estate. Just for the sake of argument, let's say the estate is £800k in total. So Parent two (who doesn't pay IHT upon spouse's death) and kids inherit £400k apiece (taking 'the kids' to mean one notional person here). Which means that, because it is below £600k (the threshold announced yesterday), there's no tax to pay.

When the second parent dies, the remainder of the esate - still £400k for the sake of this argument (setting aside inflation etc) - goes to the kids. Again, no IHT.

Bearing in mind that - and I think I'm right here - there has to be seven year gap between inheritance of estate and death for there also to be no IHT tax (this is where Trust Funds are set up here)... nope, I'm confused.

Not quite. As I understand it, Parent ones allowance passes to the next parent if parent one leaves everything to parent two (as transfers between spouses is tax-free).

So, in your example there would ultimately be £200k to pay tax on the £800k estate (as the combined allowance for both parents is £600k) but it's a question of when it's paid. Partly with the death of each parent or in full when parent two dies.

...AND in the real world the vast majority of people DO NOT DO ANY DEATH PLANS. Parent one dies gets everything, parent two dies and next of kin gets the threshold and then taxed at 40% on everything above that.

Even if they do plan for death most people pass the entire house to the surviving parent. It's safer esp. for those in their twilight years.

What this means is that most people needn't worry about setting up distressing and complicated wills and can rest assured that the house will go to their kiddies.

 

[Moshe Gariani]

It's very hasty and ill-prepared thinking by the Govt. According to some on here, the Govt could sit back and have 2 years to come up with something to thrash and trash the Tories plans. Strange they announced something the following week. An impartial observer might even view it as panic.

Surely the reason it only took a few days to work out is that it's so straightforward...? Nothing complex about politically expedient tax giveaways is there? I regret that Labour have had to bow to pressure from relatively privileged Middle Englanders - but if that's what it takes for them to stay in power and continue all the other good work then it's a fair price to pay...

 

[Buzzer]

Surely the reason it only took a few days to work out is that it's so straightforward...? Nothing complex about politically expedient tax giveaways is there? I regret that Labour have had to bow to pressure from relatively privileged Middle Englanders - but if that's what it takes for them to stay in power and continue all the other good work then it's a fair price to pay...

I'm not even gonna bother arguing with you anymore. You're so entrenched in your petty class wars that you're impervious to debate.

 

[Buzzer]

to me its now more above board, and the ordinary joe does not have to resort to accountants/lawyers to find ways around the tax.

If nothing else 10/10 for that.

Yep. Agree with that sentiment.