Hammond calls for a simpler inheritance tax

[Bouleversee]

Article in FT Money this weekend:

https://www.ft.com/content/bae6ce38-06a ... 0ad2d7c5b5

Includes the following:

"Paul Morton, tax director of the Office of Tax Simplification, says he will think about the "user experience", as well as the complexity of the legislation itself.. ....He said he was keen to hear from taxpayers about their experience, as their views are not always easy to access. (Suggestions can be emailed to ots@ots.gsi.gov.uk.)"

Now's your chance, fellow Fools. It would be interesting to know what others would like changed but I don't know whether this is the right board. They could start by increasing the annual exempt gift allowance and IHT exempt allowance in line with inflation since last increased.

[Nimrod103]

Article in FT Money this weekend:

https://www.ft.com/content/bae6ce38-06a ... 0ad2d7c5b5

Includes the following:

"Paul Morton, tax director of the Office of Tax Simplification, says he will think about the "user experience", as well as the complexity of the legislation itself.. ....He said he was keen to hear from taxpayers about their experience, as their views are not always easy to access. (Suggestions can be emailed to ots@ots.gsi.gov.uk.)"

Now's your chance, fellow Fools. It would be interesting to know what others would like changed but I don't know whether this is the right board. They could start by increasing the annual exempt gift allowance and IHT exempt allowance in line with inflation since last increased.

Surely it is difficult for ordinary people to express views about a particular tax, because one doesn't know what other people's tax positions really are. The main objection to Inheritance Tax is that there is a general opinion that it is only paid by the Middle Classes, and the rich and super rich are able to easily avoid it. How much IHT did the Duke of Westminster pay recently? How does one express that in words which will carry weight with the OTS?

[TedSwippet]

They could start by increasing the annual exempt gift allowance and IHT exempt allowance in line with inflation since last increased.

If the past is any guide, a government call for 'simplification' is almost always just code for 'more tax increases'. If they had any intention of increasing these two allowances for inflation they would have already announced it.

[Dod101]

What I think they are getting at are the new allowances introduced by Osborne re giving an extra £100,000 IHT free allowance on the family home provided it is left to the next generation(s) for instance, not something as obvious as increasing the existing allowances. There seems to be confusion about that, If you leave it does it have to be the physical asset or can it be the proceeds? What is meant by direct descendants (it does not include nephews and nieces for instance but should it? Should it be abolished altogether and just increase the current tax free allowance? IHT free gifts? Reduction in tax rate from 40% to 30% if you leave at least 10% of your taxable estate to charity?

All of these things may seem obvious but they do not seem to be and anyway it all adds up (like our income tax arrangements) to a highly complicated calculation for some and to what end?

Personally I would allow the 7 year gifts to continue (maybe reduce it to 5) and just allow say the first £500,000 as the IHT free band. Tax the rest on a sliding scale. Allow charitable gifts to be tax free of course.

Dood

[Steveam]

I believe replacement rather than reform is required. I have sent the following:

Dear Sirs,

May I suggest that inheritance tax be replaced by some sort of recipient tax. There would need to be special circumstances for, say, dependants but the essence of what I’m suggesting is that recipients should have the money treated as taxable income.

I can see arguments for allowing, say, the first £20,000 receipt to be tax free and even the total to be spread over, say, 5 years. But these are all minor tweaks to the thrust of this idea.

I believe Merryn Somerset Webb wrote on this subject in the Weekend FT a year or two ago. Regrettably I can’t locate the piece but it’s well worth reading.

My view is that replacement rather than reform is the better option.

[PinkDalek]

What I think they are getting at are the new allowances introduced by Osborne re giving an extra £100,000 IHT free allowance on the family home provided it is left to the next generation(s) for instance, not something as obvious as increasing the existing allowances. There seems to be confusion about that, If you leave it does it have to be the physical asset or can it be the proceeds? What is meant by direct descendants ...

I haven't checked the legislation but, in an attempt to answer some of your queries, here is the:


Policy paper
Inheritance Tax: main residence nil-rate band and the existing nil-rate band
Updated 12 June 2017
https://www.gov.uk/government/publicati ... -rate-band

Extracts only:

A direct descendant will be a child (including a step-child, adopted child or foster child) of the deceased and their lineal descendants.

and

In addition, legislation in Finance Bill 2016 will provide that where part of the main residence nil-rate band might be lost because the deceased had downsized to a less valuable residence or had ceased to own a residence on or after 8 July 2015, that part will still be available provided the deceased left that smaller residence, or assets of equivalent value, to direct descendants.

[JohnB]

The email I sent them:

My suggestions for simplification of IHT

1) Roll the house allowance into the main allowance. It is complex to administer, and penalises those without children who are still passing funds within their families.

2) Allow taper relief to apply to all gifts.

3) Replace the complications of marriage gifts, small gifts, gifts out of income with a single number, say £10k/pa, and not taper it. Leave the living costs exemption.

4) Include pension pots inside IHT. They are assets like any other.

5) Remove the relief on gifts to political parties. They are not charitable

[Dod101]

PD

I have a handle on some of the legislation and I guess I could have found it as you have kindly done but the fact of the matter is that it is over complicated and getting more so all the time.

JohnB seems to me to have got good ideas and simplification is what is needed. These ideas would help and appear to be what the Chancellor is trying to do so you never know. I wonder if he reads TLF?

Dod

[PinkDalek]

The FT article would appear to be replicated here:

http://www.hl.co.uk/news/2018/2/2/hammo ... itance-tax

It includes:

Even though IHT is paid after fewer than one in 20 deaths, it fuels anxiety and anger that is out of proportion to the amount it raises, expected to be £5bn this year.

[supremetwo]

With the huge increases in university fees, gifts to cover that plus accommodation expenses for children or grandchildren should be exempted from IHT.

And if IHT were abolished altogether or raised to USA levels, more wealth would remain in the UK rather than departing for overseas tax havens and more will come here.

https://wealth-monitor.com/news-today/m ... lionaires/
An estimated 11,000 millionaires moved to Australia in 2016 compared to 10,000 that moved to the US and 3,000 that moved to the UK.

[genou]

With the huge increases in university fees, gifts to cover that plus accommodation expenses for children or grandchildren should be exempted from IHT.

Parental funding already is. See http://www.legislation.gov.uk/ukpga/1984/51/section/11

[Lootman]

My suggestion would be to abolish IHT. Taxing death is just spiteful.

But if we have to have IHT, then raise the nil-rate band to something reasonable, like 10 million, which is the case in the US. That way IHT would return to its original intention - a tax only on the very wealthy.

[Lootman]

My suggestion would be to abolish IHT. Taxing death is just spiteful.

But if we have to have IHT, then raise the nil-rate band to something reasonable, like 10 million, which is the case in the US. That way IHT would return to its original intention - a tax only on the very wealthy.

[Bouleversee]

PD

I have a handle on some of the legislation and I guess I could have found it as you have kindly done but the fact of the matter is that it is over complicated and getting more so all the time.

JohnB seems to me to have got good ideas and simplification is what is needed. These ideas would help and appear to be what the Chancellor is trying to do so you never know. I wonder if he reads TLF?

Dod

I doubt it, but the OP does give an email address to which to send your suggestions. BTW the RNRB gets tapered to nothing very quickly on estates upwards of £2m so not available to a lot of people in the south.

[Bouleversee]

As well as raising allowances to meaningful levels (£3k went a long way towards school fees when my children were young but goes nowhere now) I think the playing field should be levelled as regards pensions funds and ISAs. Unless I have forgotten, I don't think anyone has come up with a logical reason why pension funds (built up from tax relieved contributions added to by employers) should be able to be left IHT free to heirs whereas ISAs paid for out of taxed income with no employer enhancement can only be left to spouses who may not need them (or may be already dead) whereas the next generations desperately do.

The problem about taxing the recipients, as another poster has suggested, rather than the deceased, is that the amount of tax payable would depend very much on the ages of the deceased and the recipients and the earnings and tax position of the latter when the death occurred. A recipient could be a student, a reasonably high earner paying a lot of tax but committed to the hilt and little in the way of savings and pension provision, a non-earning wife married to a rich husband, a retired person with an inadequate pension, a minor nephew whose parents and grandparents are well off, etc.. I'm not sure that that move would achieve greater fairness. I think if one has paid the appropriate amount of tax throughout one's life and has chosen to save rather than spend to the hilt, one should be able to leave a lot more than £325k without paying 40% tax on the rest and one should be able to gift a lot more without eating into the IHT allowance and adding a major tax dimension to the lottery of the date of one's death. If one would rather spend one's savings on school or university fees for one's grandchildren or helping them onto the housing ladder than on expensive cruises or clothes etc., or maybe one is unable to travel for medical reasons, why should one be penalised for giving spare cash away to one's family?