[Politics] Inheritance Tax

[Pavilionaire]

Umm, yes, I did it for 20 years The vast majority of people aren’t on self assessment. You think all those recipients of Aunt Maude’s cash would declare their inheritances ? To prevent that, you’d need a reporting process at point of distribution and then an audit process to ensure all the distributions had been captured - and HMRC are already drowning. It would be a colossal admin overhead.

Everyone aged 16 or over has an NI number.

If at the point of grant at probate it was reported electronically to HMRC the net estate together with NI number of beneficiaries and their share of estate then HMRC would know even before the assets had been conveyed as to who has got what.

HMRC could then target recipients of assets.

So many people inherit property that they either sell but don't report, or let out but don't tell HMRC about. Yes, HMRC have access to Land Registry records but are playing catch-up, particularly when people may have already spent the proceeds.

HMRC need to sort this problem out, because the cost of labour / systems are far outweighed by the lost tax revenue.

 

[dsr-burnley]

Everyone aged 16 or over has an NI number.

If at the point of grant at probate it was reported electronically to HMRC the net estate together with NI number of beneficiaries and their share of estate then HMRC would know even before the assets had been conveyed as to who has got what.

HMRC could then target recipients of assets.

So many people inherit property that they either sell but don't report, or let out but don't tell HMRC about. Yes, HMRC have access to Land Registry records but are playing catch-up, particularly when people may have already spent the proceeds.

HMRC need to sort this problem out, because the cost of labour / systems are far outweighed by the lost tax revenue.

Very few people sell property and don't report the sale, because that would have be done for cash without involvement of a solicitor for either the buyer or the seller. Bearing in mind that the sale of a recently-inherited property will have few or no tax implications, why would they bother?

None of which is particularly relevant because they will never make estates taxable on the UK recipients. It would simple for a multi-millionaire to set up an overseas family trust and avoid the tax.

 

[Birdie Boy]

That‘s all we’ve done (and my parents did), as you say nothing to do with IHT or any other tax. From what I know IHT is actually pretty difficult to avoid for most - choices are spend it, give it away or take out an insurance policy to cover it.

Why did the life insurance need to go into a trust? If I did, the mortgage is paid off and the wife gets x amount. Would that not just be immediately paid out before probate?

 

[Driver8]

Why did the life insurance need to go into a trust? If I did, the mortgage is paid off and the wife gets x amount. Would that not just be immediately paid out before probate?

No. If not in trust it is part of the estate and subject to probate. That is the trouble with not getting proper advice and taking out life assurance with someone who advertises on daytime TV.

Edit: I’m not suggesting you did but many do.

 

[Driver8]

Duplicate

 

[Weststander]

I don’t think expert advice is required with the life assurance issues mentioned above.

Simply ask the life company for the form to put the life assurance policy in trust. Their forms are incredibly simple.

In practical terms, following death the payout is made fairly swiftly directly to the stated beneficiary. Tax-free and not part of the estate.

 

[dejavuatbtn]

Just bung an additional and simple extra 1% on income tax and stop fiddling about with lots of other minor tax changes.

Align the tax free allowance with highest rate of pension, review thresholds, stick up higher rate tax to a level where top top earners pay significantly more to increase overall tax income.

 

[Driver8]

I don’t think expert advice is required with the life assurance issues mentioned above.

Simply ask the life company for the form to put the life assurance policy in trust. Their forms are incredibly simple.

In practical terms, following death the payout is made fairly swiftly directly to the stated beneficiary. Tax-free and not part of the estate.

Ok if you know to ask for one, most won’t. Also not all providers will provide one, especially those marketing directly to over 50’s for instance, although they will provide an M&S voucher or a free pen.

 

[Triggaaar]

So many people inherit property that they either sell but don't report, or let out but don't tell HMRC about.

I've never gone through this - don't all assets inherited go through probate, and get taxed before reaching the beneficiary? If so, how does the property become the benefactor's property without being taxed first?

 

[Weststander]

I've never gone through this - don't all assets inherited go through probate, and get taxed before reaching the beneficiary? If so, how does the property become the benefactor's property without being taxed first?

People gift homes or at joke values to relatives, years before that.

 

[Weststander]

Align the tax free allowance with highest rate of pension, review thresholds, stick up higher rate tax to a level where top top earners pay significantly more to increase overall tax income.

45% is the top rate of tax.

I haven’t heard mainstream politicians or others of note say increase it.

Keeping 55% of what you’ve earned feels fair.

The focus should be on closing the tax gap and the loopholes that stop people avoiding 40% and 45% tax.

 

[Triggaaar]

People gift homes or at joke values to relatives, years before that.

Yeah but that applies to all assets, not just homes. @Pavilionaire said about people inheriting a property and then not paying tax. I'm not sure how that can happen.

 

[drew]

That‘s all we’ve done (and my parents did), as you say nothing to do with IHT or any other tax. From what I know IHT is actually pretty difficult to avoid for most - choices are spend it, give it away or take out an insurance policy to cover it.

Not sure you can say IHT is difficult to avoid for most bearing in mind most estates don't come anywhere near having to pay it! In 2020/21 it was about 4% if estates that were subject to IHT.

 

[dsr-burnley]

People gift homes or at joke values to relatives, years before that.

Homes aren't subject to CGT so there is no need to use a joke value.

 

[Weststander]

Yeah but that applies to all assets, not just homes. @Pavilionaire said about people inheriting a property and then not paying tax. I'm not sure how that can happen.

It’s ‘sold’ to the relative long before being on the radar of solicitors at time of death.

 

[Weststander]

Homes aren't subject to CGT so there is no need to use a joke value.

IHT avoidance.

And second homes are subject to CGT. I saw a wealthy individual pass his second home to his son. HMRC caught him out after noting it from Land Registry data. CGT bill and penalties.

 

[Weststander]

Not sure you can say IHT is difficult to avoid for most bearing in mind most estates don't come anywhere near having to pay it! In 2020/21 it was about 4% if estates that were subject to IHT.

This. Those with deep pockets for professionals make the moves many years before death.

 

[dazzer6666]

Not sure you can say IHT is difficult to avoid for most bearing in mind most estates don't come anywhere near having to pay it! In 2020/21 it was about 4% if estates that were subject to IHT.

For most where the estate is over the threshold obviously

 

[Triggaaar]

It’s ‘sold’ to the relative long before being on the radar of solicitors at time of death.

So you're not talking about a transaction 7 years or more before death, you're talking specifically about underselling a property closer to the time of death?

 

[Weststander]

So you're not talking about a transaction 7 years or more before death, you're talking specifically about underselling a property closer to the time of death?

IHT avoidance obviously can start many years prior to death.

I would imagine that @Pavilionaire meant the wider timeframe. We’ll have to see.