Ship of Fools: Inheritance Tax

Thread: Inheritance Tax Board: Oblivion / Ship of Fools.

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Posted by orfeo (# 13878) on :

I have just briefly come across an episode of the UK show Country House Rescue.

When these people inherited a castle - not a direct parent-to-child inheritance I think - they incurred an inheritance tax bill of 6 million pounds.

This just seems absolutely ludicrous. Inheriting a property, even a very nice, very large property, doesn't mean you suddenly have millions of pounds of liquid assets sitting around.

It seems positively designed to force the inheritors to sell. The couple in question in fact sold off part of the estate. They also used their pension funds because they didn't want to sell the whole lot.

But what benefit is there in forcing or pressuring a sale in these circumstances? Is there some benefit in seeing large properties go to people who have made money themselves rather than inherited??

I'm pretty sure that Australia no longer has any kind of death/inheritance taxes. Are they still in place elsewhere?

Posted by Ad Orientem (# 17574) on :

I think inheritance tax is commonplace here in Europe. Here in Finland we have it and they have it in England too. Daylight robbery, of course.

Posted by cliffdweller (# 13338) on :

But the thing is, to run a country obviously you have to raise capitol in some way, in order to provide the goods and services we need to survive. Liberals and conservatives will, of course, argue over whether there should be more or less of those services, which ones are important and which are expendable, but the fact is, we all want some and therefore taxes will and should be a necessary way of life.

So then the only question is, which taxes? Again, liberals and conservatives will argue over this. But inheritance tax seems like a fairly innocuous one because it is, in a sense, "found money"-- money you didn't earn and therefore presumably aren't depending on for your daily life in the same way an income, property or sales tax would be. There will be ramifications for investment, etc. which is why economists and politicians will continue to debate it. But on a basic moral level it's hard for me to get worked up over given the alternative is to raise other sorts of taxes that will impact lower classes more.

[ 22. August 2013, 09:03: Message edited by: cliffdweller ]

Posted by Felafool (# 270) on :

AFAIK, many properties have been left derelict because of Inheritance Tax. Great Uncle leaves stately home to family, the roof gets ripped off, the building is instantly deemed uninhabitable, therfore no (or greatly reduced) inheritance tax, but guaranteed dereliction of mansion! [Frown]

Posted by CL (# 16145) on :

Being well acquainted with inheritance tax through a previous job I find that a more accurate appellation is grave robbing.

Posted by Albertus (# 13356) on :

Look, inheritance tax is the least problematic of all taxation. If viewed as a tax on the testator, it's painless because it doesn't arise until you're dead: if viewed as a tax on the inheritor it is, as was said upthread, a 'luck' or 'windfall' tax, on assets that you haven't earned and which you've lived without owning until you inherit them. People who object to inheritance tax IME generally object to all taxation (or at least to all taxation which might fall on them): people who accept that taxation is necessary for a civilised society - that is, grown-ups- don't generally object to inheritance tax.

Posted by Marvin the Martian (# 4360) on :

My father was brought up in the same house that his father and grandfather had been brought up in - the house had stayed in the family for three generations. You couldn't do that today - each successive generation would have to sell up and move to a smaller house merely in order to pay the tax.

Is that fair?

Posted by Anglo Catholic Relict (# 17213) on :

It is in effect a tax on the dead, and in my view iniquitous. Something which Richard Hunne objected to, most strongly, and look where it got him.

Dead people cannot legally own anything so it makes sense for the state to rob any estate of a huge proportion before allowing their family to inherit.

In the UK at least, for relatively modest estates I think the way round it is to gift everything to one's heir, and then live another 7 years. For obvious reasons this is not always practicable.

[ 22. August 2013, 09:33: Message edited by: Anglo Catholic Relict ]

Posted by ButchCassidy (# 11147) on :

Inheritance tax is essentially a massive pit in the ground with signs all around it. It really hurts if you fall in it (the basic rate is 40%) but you are given plenty of warning.

The firm I work for assists very rich people to minimise the inheritance tax due on their estates. There are many ways to do so (a trust being a common example). It is possible to reduce the tax on even a very large estate to zero.

However, most of the tactics can only be used before death. It is not really possible to avoid the IHT as a beneficiary of an estate. This couple's situation is unfortunate (but what the Inland Revenue rely on).

Posted by Curiosity killed ... (# 11770) on :

Death duties / inheritance tax had even better wrinkles: widows used to pay inheritance tax and/or death duties (introduced 1894) on their husband's houses, back in the day when everything was owned in the husband's name. My widowed grandmother had to sell up and downsize to pay it, not on an estate, but on a stockbroker belt house, in early 1969. From something I tripped over on an tax site I suspect the law changed in April 1969 on that one, a couple of months too late. For a while it was pretty essential in tax planning that husbands and wives jointly owned property to avoid this tax pitfall.

I'd vaguely heard this one from family conversations and have found dates. Death duties were introduced in 1894. The First and Second World Wars meant that many estates had to pay several hits of death duties on properties in quick succession which crippled many country estates.

Posted by Sioni Sais (# 5713) on :

You've got to get tax from somewhere!

There's an alternative to have a once-in-a-lifetime sting on capital assets, namely a smaller, annual, wealth tax on assets over a certain amount. Schedule A Income Tax is based on imputed rent (the rent a property would be expected to realise) and was payable in respect of owner-occupied premises until some time in the 1950's when it was dropped because it was unpopular. Heck, if taxes were dropped simply because they were unpopular where would VAT, National Insurance contributions, income tax and fuel duty all be?

Posted by Oferyas (# 14031) on :

I seem to remember that UK income tax was introduced as a purely temporary measure around the time of Napoleon?

Posted by Marvin the Martian (# 4360) on :

It just baffles me that someone can spend a lifetime building up a legacy for their children - and being taxed on every penny earnt and every penny spent while doing so, remember - only for nearly half of that lifetime's effort to then be taken away by the government.

When my parents die - please God, not any time soon - why should so much of what they spent their lives building be lost? It just doesn't seem fair.

Posted by CL (# 16145) on :

Ultimately governments are junkies and taxes are their heroin. They always are looking for their next fix and will resort to everything up to and including criminality to get it.

Posted by orfeo (# 13878) on :

quote:
Originally posted by Albertus:
Look, inheritance tax is the least problematic of all taxation. If viewed as a tax on the testator, it's painless because it doesn't arise until you're dead: if viewed as a tax on the inheritor it is, as was said upthread, a 'luck' or 'windfall' tax, on assets that you haven't earned and which you've lived without owning until you inherit them. People who object to inheritance tax IME generally object to all taxation (or at least to all taxation which might fall on them): people who accept that taxation is necessary for a civilised society - that is, grown-ups- don't generally object to inheritance tax.

Hello, I don't believe we've met. As I am apparently completely out of your experience.

It's iniquitous because the tax falls on someone who other than the person who conducted the activity. The dead person is the one who made decisions about where property would go. But it's the recipient who has to cough up.

And my objection to it is because it's so obviously going to have a deleterious impact on the property being passed, because it's precisely that property that the recipient is probably going to reason they can live without. If it's a choice between them suffering and the property suffering, most people - not the couple on the TV show - are going to decide the property should do the suffering.

[ 22. August 2013, 11:09: Message edited by: orfeo ]

Posted by Albertus (# 13356) on :

quote:
Originally posted by Marvin the Martian:
My father was brought up in the same house that his father and grandfather had been brought up in - the house had stayed in the family for three generations. You couldn't do that today - each successive generation would have to sell up and move to a smaller house merely in order to pay the tax.

Is that fair?

Well, it depends what you tax and when. In that case, if I were writing the tax code I would defer liability for tax on such a property, if it was lived in as a main home, until it was sold- with the proviso that tax would be on the value of the property at sale rather than at the time it was inherited. Alternatively you could exempt a property that you actually lived in or into which you moved as your main home on inheriting it, but I'd compensate for this by taxing any asset in cash or kind that was freed up by you doing this (i.e. any house that you owned from which you moved back to the 'ancestral' home) and I'd put a covenant on the 'ancestral' home to the effect that you'd have to pay tax on your inheritance of it if you sold it or ceased to use it as your main home within a reasonably lengthy period of time.

Let me give you another scenario. My father and my stepmother live in a house which they own, I think outright, and which has hugely increased in value even in the dozen years they've been living there, simply because house prices in that town have shot up. I have a perfectly satisfactory house, in which I live, in another part of the country, and have no wish to move to the town where my parents live. If they were to die without other heirs I'd stand to inherit a house which could, I suppose, be sold for about £750,000. I would have done absolutely nothing to earn that inheritance: it'd be a pure windfall. My parents would be dead and so would have no further use for the house (which would have passed to me, anyway). Given that taxes have to be raised somewhere, wouldn't that be the least painful point at which to do so?

Interesting, Orfeo, that you say that IHT is iniquitous because it falls on someone other than the person who conducted the activity. Leaving aside the issue of whether accepting a bequest counts as conducting an activity (and you can always refuse a bequest, surely, at least in common law countries) many opponents of IHT do see it as a 'tax on the dead'. From that point of view, the a'activity' is acquiring assets which can be passed on after death. Perhaps, then, you prefer a substantial wealth tax? I have no problem with that but I suspect that it would produce rather more squeals of indignation than IHT ever does.

[ 22. August 2013, 11:16: Message edited by: Albertus ]

Posted by orfeo (# 13878) on :

quote:
Originally posted by Albertus:
Let me give you another scenario. My father and my stepmother live in a house which they own, I think outright, and which has hugely increased in value even in the dozen years they've been living there, simply because house prices in that town have shot up. I have a perfectly satisfactory house, in which I live, in another part of the country, and have no wish to move to the town where my parents live. If they were to die without other heirs I'd stand to inherit a house which could, I suppose, be sold for about £750,000. I would have done absolutely nothing to earn that inheritance: it'd be a pure windfall. My parents would be dead and so would have no further use for the house (which would have passed to me, anyway). Given that taxes have to be raised somewhere, wouldn't that be the least painful point at which to do so?

The obvious answer to this is to tax the sale, not the act of inheriting. Precisely because inheriting isn't really an 'act' and a decision to sell is.

And if you don't sell, then you should be paying nice high rates on a nice valuable property.

[ 22. August 2013, 11:17: Message edited by: orfeo ]

Posted by Albertus (# 13356) on :

Which is effectively one of the things which I suggested. I'm all for levying Capital Gains Tax on profits from house sales (apart from anything else, it would damp down speculation in the property market and, thus, house prices) but again I suspect that few of those who agree with you about IHT would agree with you on this point.

Unless of course I've completely misunderstood you and your objection to IHT is that it doesn't squeeze the rich hard enough? [Smile]

In which case, I think we could be on the same side!

Posted by orfeo (# 13878) on :

My objection to it is fundamentally that it's not a tax imposed on a person by reason of that person's activity.

It also doesn't work as wealth redistribution mechanism, either. As mentioned above, rich people with lawyers create trusts and so forth. Also mentioned in this paper I dug up while scratching around for more information. Apparently Australia was the first Western country to get rid of death taxes. I wasn't aware we had been innovative.

Posted by Marvin the Martian (# 4360) on :

quote:
Originally posted by Albertus:
From that point of view, the a'activity' is acquiring assets which can be passed on after death.

Yes, and that activity is already taxed. There are income taxes on earnings, and VAT on purchases.

Posted by Gee D (# 13815) on :

quote:
Originally posted by orfeo:
My objection to it is fundamentally that it's not a tax imposed on a person by reason of that person's activity.

Or inactivity.

Death duties wer e abolished here 40+ years ago. The real objection is that they amount to a tax upon after-tax savings. I cane see different considerations in the UK etc. Not that different to old feudal dues payable to the lord.

Posted by tclune (# 7959) on :

Let's see: There is huge disparity in wealth. The thing that is unfair is that there exists a tax that mildly interferes with making that disparity the birth right of those born into privilege. Yup, that seems about right...

--Tom Clune

Posted by orfeo (# 13878) on :

quote:
Originally posted by tclune:
Let's see: There is huge disparity in wealth. The thing that is unfair is that there exists a tax that mildly interferes with making that disparity the birth right of those born into privilege. Yup, that seems about right...

--Tom Clune

It's rather a large assumption that they were born into it, though. For starters, that's an assumption that rich people always have children. It's also an assumption that rich people always pass on their property TO their children.

Posted by tclune (# 7959) on :

quote:
Originally posted by orfeo:

quote:
Originally posted by tclune:
Let's see: There is huge disparity in wealth. The thing that is unfair is that there exists a tax that mildly interferes with making that disparity the birth right of those born into privilege. Yup, that seems about right...

--Tom Clune
It's rather a large assumption that they were born into it, though. For starters, that's an assumption that rich people always have children. It's also an assumption that rich people always pass on their property TO their children.

Way to keep your eye on the ball...

--Tom Clune

Posted by orfeo (# 13878) on :

I also wouldn't describe a 6 million pound tax bill as mild interference. Even if you're asset-rich, coming up with 6 million pounds cash is not likely to be an everyday task.

Posted by Marvin the Martian (# 4360) on :

quote:
Originally posted by tclune:
Let's see: There is huge disparity in wealth. The thing that is unfair is that there exists a tax that mildly interferes with making that disparity the birth right of those born into privilege.

How are you defining "born into privilege", exactly? Should the recently-bereaved child of a cash-poor farmer who nevertheless owned the deed to his farm have to sell the place to some rich person in order to pay the inheritance tax? And if so, how does that do anything to fix the disparity?

Posted by Moo (# 107) on :

quote:
Originally posted by Marvin the Martian:
Should the recently-bereaved child of a cash-poor farmer who nevertheless owned the deed to his farm have to sell the place to some rich person in order to pay the inheritance tax? And if so, how does that do anything to fix the disparity?

The same applies to people who have established a prosperous small business, such as a restaurant. If the heirs have to pay a hefty inheritance tax, they will have to sell the business. This may result in the employees losing their jobs.

Moo

Posted by Albertus (# 13356) on :

quote:
Originally posted by Marvin the Martian:

quote:
Originally posted by Albertus:
From that point of view, the a'activity' is acquiring assets which can be passed on after death.
Yes, and that activity is already taxed. There are income taxes on earnings, and VAT on purchases.

OK, so be prepared to whack up the taxes on earned and- crucially- unearned (so you catch things like rises in property values which often require no activity other than staying put while prices shoot up) income and wealth in people's lifetimes, and I might be prepared to listen to your argument against IHT.

Posted by Marvin the Martian (# 4360) on :

quote:
Originally posted by Albertus:
OK, so be prepared to whack up the taxes on earned and- crucially- unearned (so you catch things like rises in property values which often require no activity other than staying put while prices shoot up) income and wealth in people's lifetimes, and I might be prepared to listen to your argument against IHT.

I fail to see why that would be necessary. But then, I don't hate the idea of people getting richer, or insist that every time money changes hands the government should take a cut.

Posted by Penny S (# 14768) on :

When dealing with my father's affairs - and we were exempt because of his and my mother's IHT being put together - I did feel like turning up at the tax office with the cow which would have been the medieval equivalent, given to the lord of the manor.

Posted by ButchCassidy (# 11147) on :

Actually, in the UK both the scenarios you guys have just set out - a farm, and a small business - would probably qualify for 100% IHT relief (using the Agricultural Property and Business Property reliefs respectively). There are many such exemptions and reliefs.

As I said above, IHT can really hurt you if it hits you, but there are many ways to avoid it.

Posted by Crœsos (# 238) on :

quote:
Originally posted by Marvin the Martian:
Yes, and that activity is already taxed. There are income taxes on earnings, and VAT on purchases.

The problem with this perspective is that it can be applied to any sort of economic activity. For example, if you work for a company your employer is taxed. Yet the fact that the company was already taxed on its revenue stream isn't seen as removing your obligation from paying taxes on a salary drawn from that revenue stream. Likewise, if you use some of that salary (on which you've already paid taxes) to hire a landscaper that landscaper is still obligated to pay tax on that income despite the fact that the money was already taxed when it was your salary.

Most modern tax systems apply a tax every time money changes hands. Why should money changing hands via inheritance be exempted in a way that's not true of money changing hands as salary or payment for services or any of the other ways money changes hands?

Posted by Lucia (# 15201) on :

The main difficulty to me seems to be when someone is inheriting something that is not money but a whole "something" that you cannot just hand on a part of in tax, it has to be sold in it's entirety to raise the cash to pay the tax. Houses are the obvious example. I suppose the answer is to sell the asset and buy something else with the remainder but that is a hard answer if it is a family home or business that the person would love to take on and continue with themselves.

Hard cash is easier to part with emotionally than a family home with all the feelings and memories associated with it.

Posted by Mere Nick (# 11827) on :

quote:
Originally posted by ButchCassidy:
Actually, in the UK both the scenarios you guys have just set out - a farm, and a small business - would probably qualify for 100% IHT relief (using the Agricultural Property and Business Property reliefs respectively). There are many such exemptions and reliefs.

As I said above, IHT can really hurt you if it hits you, but there are many ways to avoid it.

There's a lot that can be done here, too. In the US a couple can currently both shuffle the coil and pass on $10.5 million, combined, to their heirs without the estate taking a hit. There's that, and each of the couple can gift $14k each year to anyone they want. If there are ten descendants, that's $280k a year. Family farms get a bit of a special deal, too.

Posted by leo (# 1458) on :

Like Marvyn, I think inheritance tax is deeply unfair and unjust.

As a leftie, i might be expected to applaud the redistribution of wealth but it hits the poor as well as the rich.

true, I had tax reduction when paying my mortgage but i was still paying all the other taxes. Then it all gets taxed again upon my death.

Posted by orfeo (# 13878) on :

I agree with Lucia, that is one of the serious difficulties.

The other, which I know I've referred to already but it's very important, is that the tax is incurred by someone who is not responsible for the activity or event that is taxable. The reason that's important is that there is no capacity to prepare for the event.

Almost every other tax, you're engaging in some kind of activity and you can and probably will know there's a tax associated with it, and you can take that into account. When I bought a house, I knew about stamp duty and I could factor in the cost of stamp duty and consider that when making a purchase decision. (The government here in the ACT is actually getting rid of stamp duty as inefficient and inequitable, but I digress.) If you inherit a house, it's quite possible you didn't know it was going to happen, and even if you do know that it's very likely you didn't know when, and the whole thing is pretty much out of your control.

And this heightens the impact and makes it more likely that people are going to have sell property off in order to pay the tax on property. If people had control and were prepared, they might be able to ensure that liquid assets provided other options.

People talk about redistribution of wealth, but I don't see any real benefit in redistributing tangible asset wealth to some other rich individual who happens to come along at the right moment when a family has to give up what was handed down to them. Possibly gaining it at a cheap price because the family really needs to sell.

I'm all for taxing wealthy people within their capacity to pay, but my objection to this kind of tax is it's impacting people when they DON'T have capacity to pay without losing something tangible and dare I say it meaningful. If the tax on a house can realistically only be paid by giving up the house, then there's something fundamentally wrong. The people on the program had to sell part of the estate in order to 'keep the estate'. In other words, they couldn't actually keep the estate. I don't think that's equitable taxation.

[ 22. August 2013, 14:16: Message edited by: orfeo ]

Posted by Crœsos (# 238) on :

quote:
Originally posted by orfeo:
I'm all for taxing wealthy people within their capacity to pay, but my objection to this kind of tax is it's impacting people when they DON'T have capacity to pay without losing something tangible and dare I say it meaningful. If the tax on a house can realistically only be paid by giving up the house, then there's something fundamentally wrong.

How many estates consist of nothing except a house worth more than £650,000 (according to HM Revenue & Customs that's the current exemption for an estate left by a married or civilly unionized couple)? For context that's just over one million U.S dollars or about 1.1 million Australian dollars. Halve those values if the estate is that of an unmarried person. And how many inheritors would be unable to pay "in yearly instalments over ten years if the value of the estate is tied up in property such as a house"? If a beneficiary is unable or unwilling to pay tax under those conditions, I'm not sure "meaningful" is the term I'd use, and I'd question their ability to have the funds available to maintain such an asset.

Posted by aumbry (# 436) on :

quote:
Originally posted by Marvin the Martian:
It just baffles me that someone can spend a lifetime building up a legacy for their children - and being taxed on every penny earnt and every penny spent while doing so, remember - only for nearly half of that lifetime's effort to then be taken away by the government.

When my parents die - please God, not any time soon - why should so much of what they spent their lives building be lost? It just doesn't seem fair.

This is a daft argument often trotted out against taxes on capital. On the basis that the state has to collect x pounds to pay for the things the state does (and whether the state does too much is a separate argument) then it is sensible that taxes are levied on capital transfers/gains as well as income. If there were no inheritance tax and no capital gains tax then there would have to be higher levels of income tax and therefore the estate on death would be reduced by these.

Aside from the fact that it is outrageous to tax quite poor people's income while allowing substantial windfalls in the way of inheritances to pass tax free.Compare the thresholds of income and inheritance taxes as an illustration. And these are not taxes on the dead but on the living who inherit.

As for the people living in a castle who had to stump up several million pounds to pay the inheritance tax on it, they had three options: (i) sell to someone who could afford the place (ii) conditionally exempt the property from inheritance tax which assuming this is a part of the nation's heritage (which a castle sounds like it would be) means that provided certain levels of public access are given the tax can be deferred until it is either sold or the access withdrawn or (iii) pay the tax.

The suggestion that these taxes be paid only when the asset is sold would not be in the public interest as this would not be an efficient use of the asset - imagine all sorts of derelict properties which people could not afford to maintain or did not need but still refused to sell to avoid paying taxes.

Posted by no prophet (# 15560) on :

We don't have inheritance per se in Canada, but we do have capital gains tax. Thus: house bought 40 years ago for 130K might sell for 650K today, 520K would be the capital gain and that is taxed because owned property is deemed sold the day the owner dies.

The solution we've found is to buy life insurance to pay the tax. You could even have the kids buy it, so long as they don't want to bump off mummy and poppa, But 6 million £ is a lot of life insurance. Are you allowed to form a family-owned company and have it own property? This is what a number of my colleagues have done for vacation/recreational properties. The kids are also officers of the company. Of course this also means the kids might claim a share and go gallavanting, parents be damned.

Posted by cliffdweller (# 13338) on :

quote:
Originally posted by leo:
Like Marvyn, I think inheritance tax is deeply unfair and unjust.

As a leftie, i might be expected to applaud the redistribution of wealth but it hits the poor as well as the rich.

Not really. Certainly not to the disproportionate degree that virtually every other tax (income, property, or sales) impacts the poor. So again, as said upthread, the objections really boil down to objections to all taxation in general. Once you accept that taxation is a necessary part of government, it seems the least objectionable/ problematic.

[ 22. August 2013, 15:06: Message edited by: cliffdweller ]

Posted by aumbry (# 436) on :

quote:
Originally posted by leo:
Like Marvyn, I think inheritance tax is deeply unfair and unjust.

As a leftie, i might be expected to applaud the redistribution of wealth but it hits the poor as well as the rich.

true, I had tax reduction when paying my mortgage but i was still paying all the other taxes. Then it all gets taxed again upon my death.

More twaddle.

I would be interested to see an illustration of how inheritance taxes hit the poor. But lets take an example. I think it would be reasonable to say that in Britain the poorest first time buyer on the housing ladder would probably be able to stump up about £100,000. To pay tax of £100,000 on an estate would require the property inherited to be worth either £575,000 if inherited from an unmarried individual or £900,000 from the survivor of a married couple. Even if they had not a penny they could inherit properties worth £325,000 and £650,000 repectively without having to do a days work in the bargain.

In any case the reason family homes have to be sold on the death of a parent is rarely due to inheritance tax but usually because the proceeds have to be split between various siblings.

Posted by Adeodatus (# 4992) on :

Has anybody noticed that in order for the people mentioned in the OP to incur a tax bill of £6million, they would have had to inherit an estate worth £15million?

So they had to sell the castle, and found themselves homeless in the gutter with only £9million to keep them warm.

Boy, am I going to lose sleep over that. [Roll Eyes]

(Adeodatus, whose family weren't what I would call poor, but whose inheritance, after all the bills had been paid, probably amounted to a couple of thousand quid; and who is glad that my parents were able to enjoy their earnings and small savings while they were alive.)

Posted by orfeo (# 13878) on :

quote:
Originally posted by Adeodatus:
Has anybody noticed that in order for the people mentioned in the OP to incur a tax bill of £6million, they would have had to inherit an estate worth £15million?

So they had to sell the castle, and found themselves homeless in the gutter with only £9million to keep them warm.

Boy, am I going to lose sleep over that.

Putting aside the assumption that they would actually be able to sell for the supposed on-paper value (as I have already raised this as questionable in circumstances where a sale is forced), and even acknowledging that they might, if selling the entire property, have lots of money at the end of the process, you're missing the point.

The government has forced the loss of an asset. Do you not see the problem with that? I'm a left-leaning descendant of poor factory workers, and I still think there's something wrong with taxing an item to the point where the item must be given up.

The particular VALUE of the item in question is quite beside the point as far as I'm concerned. If it'd be wrong to tax my birthday presents (NB, taxing me, not the person who bought me the present) to the extent that I need to sell the presents, then I can't see any reason why it suddenly becomes right to tax gifts to that level when the present becomes large.

As I said, I'm left-leaning. Do I believe in redistribution of wealth? Sure, in the sense of getting people with more capacity to pay to contribute a larger percentage of the money used to fund services and infrastructure. Do I believe in redistribution of tangible property? No.

[ 22. August 2013, 15:47: Message edited by: orfeo ]

Posted by Mere Nick (# 11827) on :

quote:
Originally posted by no prophet:
We don't have inheritance per se in Canada, but we do have capital gains tax. Thus: house bought 40 years ago for 130K might sell for 650K today, 520K would be the capital gain and that is taxed because owned property is deemed sold the day the owner dies.

Do the heirs get some of that 520k tax free? Here the estate sized I mentioned earlier can pass estate tax free and the beneficiaries also get a step up in tax basis to the fmv.

quote:
The solution we've found is to buy life insurance to pay the tax.

We have a few clients that are looking at a taxable estate so they have set up irrevocable trusts that they put money into that is used to buy life insurance. Since it is in the irrevocable trust the insurance proceeds are not part of their taxable estate.

It sure would be nice to have to be concerned about how estate taxes would nail me and mine.

Posted by orfeo (# 13878) on :

ADDENDUM: And the main reason I don't believe in the redistribution of tangible property is that it can't be shared in a meaningful way. And it isn't shared here. The property doesn't go to the State or to the poor, it goes to some rich person. In a competition between a rich person who inherited a property and has historical ties to it and another rich person who just has some money to buy a property, it's mystifying to me why anyone should think the government should be assisting the rich person who has some money to buy a property to win out.

Posted by Mere Nick (# 11827) on :

quote:
Originally posted by orfeo:
The government has forced the loss of an asset. Do you not see the problem with that? I'm a left-leaning descendant of poor factory workers, and I still think there's something wrong with taxing an item to the point where the item must be given up.

If they were still at the factory and it had to sell because someone died it is not inconceivable that their jobs could be at risk.

Posted by Crœsos (# 238) on :

quote:
Originally posted by orfeo:
Putting aside the assumption that they would actually be able to sell for the supposed on-paper value . . .

Wouldn't that allow them to argue that the as-assessed value is too high?

quote:
Originally posted by orfeo:
The government has forced the loss of an asset. Do you not see the problem with that?

No, the government forced the conversion of an asset. Forcing its loss would mean no value received at the end. And I'm afraid I don't see the problem. Or rather, I don't see a problem that isn't associated with any other form of taxation. If high-priced physical assets were held to be tax-exempt I think we can easily foresee the development of a barter-like economy wherein people (especially those in high paying positions) are paid in cars or jewelry or other commodities. Why get paid in cash which will be taxed when you can get tax-exempt in-kind payments?

Posted by orfeo (# 13878) on :

quote:
Originally posted by Crœsos:
If high-priced physical assets were held to be tax-exempt I think we can easily foresee the development of a barter-like economy wherein people (especially those in high paying positions) are paid in cars or jewelry or other commodities. Why get paid in cash which will be taxed when you can get tax-exempt in-kind payments?

But I'm not suggesting the asset is entirely tax-exempt. Capital gains tax on a sale has been mentioned (and we have that in Australia). Rates are calculated based on the value of a property. Those are just the first two that pop into my head. There are plenty of ways of taxing the holders of assets that don't distinguish between the methods of acquisition of those assets.

Posted by Albertus (# 13356) on :

quote:
Originally posted by Adeodatus:

So they had to sell the castle, and found themselves homeless in the gutter with only £9million to keep them warm.

You could make a thick blanket of £50 notes with that much.

Posted by aumbry (# 436) on :

quote:
Originally posted by orfeo:
ADDENDUM: And the main reason I don't believe in the redistribution of tangible property is that it can't be shared in a meaningful way. And it isn't shared here. The property doesn't go to the State or to the poor, it goes to some rich person. In a competition between a rich person who inherited a property and has historical ties to it and another rich person who just has some money to buy a property, it's mystifying to me why anyone should think the government should be assisting the rich person who has some money to buy a property to win out.

Your horror of the Nouveaux Riches and love of the Old Order might have been considered slightly old hat even in the time of Good Queen Anne. But you seem to fail to understand the basis of the transation: the property is bought by the entrepreneur at full market value the proceeds are then divided between the Exchequer and the descendants of the Sixth Duke according to a formula. The money is then used by the Exchequer for kidney machines or rockets and guns depending on the prevailing mood. The government does not insist on the transaction to favour one bread head over another.

Posted by Adeodatus (# 4992) on :

I think it's a pity that whoever spent their lives building up a hoard amounting to £15million didn't put it to good use while they were alive. I may be doing them an injustice, of course: perhaps the £15million was what little was left of the untold millions they spent feeding and clothing the poor. But I doubt that, and you're welcome to call me cynical.

Posted by Arethosemyfeet (# 17047) on :

Of all the problems with the tax system, the fact that a few enormously wealthy people might be slightly less enormously wealthy is not high on my list of priorities. Come back when we have covered the costs of supporting the elderly, disabled and unemployed, paying for decent education and healthcare for all and reduced the iniquitous rate of VAT.

For now, if people want to live in their family home when their parents die they need to spend the preceding decades saving, or buying a property that they can sell to pay the inheritance tax.

I say this with full confidence that I, like everyone else in my family and the vast majority of the population, will never be affected by inheritance tax. I am, however, affected by income tax, national insurance and student loan repayments that give me a higher marginal tax rate than someone on 4 times my salary, and certainly higher than the rate on inheritance tax. If someone pays you goods in kind while you're alive, you have to pay tax on them. Inheritance should be the same.

Posted by Mere Nick (# 11827) on :

quote:
Originally posted by Adeodatus:
I think it's a pity that whoever spent their lives building up a hoard amounting to £15million didn't put it to good use while they were alive. I may be doing them an injustice, of course: perhaps the £15million was what little was left of the untold millions they spent feeding and clothing the poor. But I doubt that, and you're welcome to call me cynical.

To build up a hoard like that strongly suggests, if not indicates, that one has produced more than he has consumed.

Posted by Crœsos (# 238) on :

quote:
Originally posted by orfeo:

quote:
Originally posted by Crœsos:
If high-priced physical assets were held to be tax-exempt I think we can easily foresee the development of a barter-like economy wherein people (especially those in high paying positions) are paid in cars or jewelry or other commodities. Why get paid in cash which will be taxed when you can get tax-exempt in-kind payments?
But I'm not suggesting the asset is entirely tax-exempt.

But that's the obvious implication of your standard that a tax which might conceivably require the liquidation of an asset is wrong. You can always find a few marginal cases where paying the tax will require selling an asset, regardless of whether it's taxation on an estate or capital gains or some other assessment.

Posted by Albertus (# 13356) on :

No, Mere Nick, not produced, amassed. To illustrate the point: I am a successful professional gambler. By a careful knowledge of the laws of probability and by a shrewd sense of when my competitors are weak, I have amassed a fortune of £15 million. What have I produced?
Or more likely: I am a currency or commodity speculator, making my money on the difference between the price at which I can buy and sell dollars, uranium or pork bellies. In the case of commodities I do not use them, finance their production or arrange their distribution: I buy them to sell them again when the price has risen (perhaps because I and those like me have cornered the market and so driven up prices- the the higher prices are not going to the producers). I have amassed a fortune of £15 million in this way. What have I produced?

[ 22. August 2013, 16:41: Message edited by: Albertus ]

Posted by orfeo (# 13878) on :

quote:
Originally posted by Adeodatus:
I think it's a pity that whoever spent their lives building up a hoard amounting to £15million didn't put it to good use while they were alive. I may be doing them an injustice, of course: perhaps the £15million was what little was left of the untold millions they spent feeding and clothing the poor. But I doubt that, and you're welcome to call me cynical.

You make it sound like one buys a castle one brick at a time, or perhaps one bedroom at a time.

Posted by Adeodatus (# 4992) on :

quote:
Originally posted by orfeo:

quote:
Originally posted by Adeodatus:
I think it's a pity that whoever spent their lives building up a hoard amounting to £15million didn't put it to good use while they were alive. I may be doing them an injustice, of course: perhaps the £15million was what little was left of the untold millions they spent feeding and clothing the poor. But I doubt that, and you're welcome to call me cynical.
You make it sound like one buys a castle one brick at a time, or perhaps one bedroom at a time.

Not really. I imagine one hoards sufficient money that one can keep it in barrels and occasionally roll in it for fun; then one buys the castle.

Posted by Curiosity killed ... (# 11770) on :

Or in the case of those big estates, making money in "interesting" ways.

The local manor house was owned by the local abbey until dissolution when Henry VIII took it over as a hunting lodge. Mary used it while Edward VI was on the throne. Elizabeth I granted it to one of her courtiers, followed by his successors until sold to someone who made his money in the slave trade in the 1750s. In Victorian times the new owner made his money building railways and/or factories. All lovely clean industries with no ethical concerns at all.

Posted by leo (# 1458) on :

quote:
Originally posted by aumbry:

quote:
Originally posted by leo:
Like Marvyn, I think inheritance tax is deeply unfair and unjust.

As a leftie, i might be expected to applaud the redistribution of wealth but it hits the poor as well as the rich.

true, I had tax reduction when paying my mortgage but i was still paying all the other taxes. Then it all gets taxed again upon my death.
More twaddle.

I would be interested to see an illustration of how inheritance taxes hit the poor. But lets take an example. I think it would be reasonable to say that in Britain the poorest first time buyer on the housing ladder would probably be able to stump up about £100,000. To pay tax of £100,000 on an estate would require the property inherited to be worth either £575,000 if inherited from an unmarried individual or £900,000 from the survivor of a married couple.

Well, I paid £26K for my place in 1980. I inherited £6k for a deposit. My mortgage was 2 1/2 times my salary and was repaid at £25 per week and I could not afford to furnish it without HP.

So a lot of my earlier life was scrimping and saving.

Why should the government cream off a large amount of what i had to work hard for?

Posted by orfeo (# 13878) on :

quote:
Originally posted by Crœsos:

quote:
Originally posted by orfeo:

quote:
Originally posted by Crœsos:
If high-priced physical assets were held to be tax-exempt I think we can easily foresee the development of a barter-like economy wherein people (especially those in high paying positions) are paid in cars or jewelry or other commodities. Why get paid in cash which will be taxed when you can get tax-exempt in-kind payments?
But I'm not suggesting the asset is entirely tax-exempt.
But that's the obvious implication of your standard that a tax which might conceivably require the liquidation of an asset is wrong. You can always find a few marginal cases where paying the tax will require selling an asset, regardless of whether it's taxation on an estate or capital gains or some other assessment.

The gap between 'might conceivably/a few marginal cases' and 'seems quite likely to cause' is a very large one.

And I can't think of any other situation where a tax might force the disposal of an asset immediately upon its acquisition. Not least because half my point is that if one is consciously acquiring an asset, one is almost certainly not going to do that if one can't bear the associated taxation costs - because it would be a colossal waste of money to buy something, pay tax on it and immediately sell it without enjoying any benefits of the item.

From what Adeodatus said, it appears the tax rate in the UK is... 40%? It's simply far too high in my opinion. That paper tells me that Australia's peak was 27% (it also says the USA got up to 77%, which is shocking). Perhaps it was easier to get rid of in Australia because it didn't bring as much money in and consequently our governments didn't become addicted to the easy pickings. And it is easy pickings. Everybody dies.

Posted by Curiosity killed ... (# 11770) on :

UK Tax rates

Generally - £9k untaxed
20% tax on taxable earnings to £35k
40% tax on taxable earnings from £35k to £150k
50% tax on taxable earnings over £150k

Also National Insurance -
12% between £149 and £797 per week
2% for earnings over £797

Posted by would love to belong (# 16747) on :

I bought my first place in 1989, aged 32, which was late for my age group. Price was £49k which I financed from an inheritance and balance of £30k was a mortgage loan. By April 1990, less than a year after I bought, the mortgage interest rate was at 15.4% and I was panicking. But stuck in and managed to survive. Moved up market a bit in 1993. By 1998, I had paid off the mortgage capital, and have been mortgage and rent free ever since. Best thing I ever did financially, although I spent the years 1989 to 1998 in frugality. Oh, and I also contented myself and didn't seek to move upmarket again. Never borrowed a penny since paying off the mortgage. Don't know what the future holds, but I hope to die with no debt.

[ 22. August 2013, 17:04: Message edited by: would love to belong ]

Posted by orfeo (# 13878) on :

That doesn't look to be the relevant kind of tax.

[cross-post, responding to CK]

[ 22. August 2013, 17:03: Message edited by: orfeo ]

Posted by Curiosity killed ... (# 11770) on :

Sorry - you wanted Inheritance Tax 40% over the nil bands

Posted by no prophet (# 15560) on :

quote:
Originally posted by Mere Nick:

quote:
Originally posted by no prophet:
We don't have inheritance per se in Canada, but we do have capital gains tax. Thus: house bought 40 years ago for 130K might sell for 650K today, 520K would be the capital gain and that is taxed because owned property is deemed sold the day the owner dies.
Do the heirs get some of that 520k tax free? Here the estate sized I mentioned earlier can pass estate tax free and the beneficiaries also get a step up in tax basis to the fmv.

I think 50% of it is untaxed or something. Not completely sure.

It is completely possible to have life insurance bypass an estate. Mine does. The best to buy on property, i.e. to defer the taxes is second to die. Thus if the property is deemed sold only when the second spouse dies, then the life insurance pays. Best meaning cheapest, which is not exactly cheap.

Posted by Penny S (# 14768) on :

I seem to remember there was something about when IHT should be paid with regard to the granting of probate which didn't seem to make sense - surely it can't be that the tax must be paid before there is access to any monies?

Posted by Crœsos (# 238) on :

quote:
Originally posted by leo:
Well, I paid £26K for my place in 1980. I inherited £6k for a deposit. My mortgage was 2 1/2 times my salary and was repaid at £25 per week and I could not afford to furnish it without HP.

So a lot of my earlier life was scrimping and saving.

Why should the government cream off a large amount of what i had to work hard for?

It won't. It will just cream off from your heirs a large amount of what they didn't have to work hard for.

quote:
Originally posted by orfeo:
From what Adeodatus said, it appears the tax rate in the UK is... 40%?

The marginal tax rate on inheritances is 40% in the UK. Pretending marginal rates are total rates is a rhetorical/mathematical trick. An estate only pays 40% of the value above the exemption (£650,000 for an estate left by a married couple, £325,000 for a single person's estate). So if you inherit an estate worth £800,000 from your (married) parents the £60,000 tax bill is an effective rate of 7.5%. It's only when you get estates an order or two of magnitude larger than the exemption that the effective rate approaches 40%.

Posted by orfeo (# 13878) on :

Croesos, I wasn't 'pretending' anything. I was merely going on the figures provided by another Shipmate, which was that a 6 million pound bill meant a 15 million pound asset. I can see NOW that this isn't strictly correct.

Posted by Touchstone (# 3560) on :

A dispute pretty much identical to this thread developed in my workplace a few months ago. All the above arguments were rehearsed and it got quite heated. Eventually an accountant colleague stepped in with the magisterial pronouncement :

"Some of us pay tax when we die so that all of us can pay less tax while we're still alive."

That shut us all up.

Posted by orfeo (# 13878) on :

quote:
Originally posted by Touchstone:
A dispute pretty much identical to this thread developed in my workplace a few months ago. All the above arguments were rehearsed and it got quite heated. Eventually an accountant colleague stepped in with the magisterial pronouncement :

"Some of us pay tax when we die so that all of us can pay less tax while we're still alive."

That shut us all up.

But it's rubbish. The dead person isn't really paying tax.

Posted by ken (# 2460) on :

quote:
Originally posted by Mere Nick:
To build up a hoard like that strongly suggests, if not indicates, that one has produced more than he has consumed.

No it doesn't. It strongly suggests that they have found a way to take a profit off what other people produce.

Posted by Touchstone (# 3560) on :

Strictly speaking, no, because they're dead. However it is a tax levied on the dead person's estate. No-one living can take possession of the estate until the tax is paid.

Posted by Arethosemyfeet (# 17047) on :

It seems to me that inheritance tax is an excellent disincentive to "store up for yourself treasures on earth".

Posted by The Rogue (# 2275) on :

Anyone for a SKI* holiday?

*Spending the Kids Inheritance.

Posted by Mere Nick (# 11827) on :

quote:
Originally posted by ken:

quote:
Originally posted by Mere Nick:
To build up a hoard like that strongly suggests, if not indicates, that one has produced more than he has consumed.
No it doesn't. It strongly suggests that they have found a way to take a profit off what other people produce.

Not everyone with money got it the way the politicians have, Ken.

Posted by Albertus (# 13356) on :

quote:
Originally posted by leo:
Well, I paid £26K for my place in 1980. I inherited £6k for a deposit. My mortgage was 2 1/2 times my salary and was repaid at £25 per week and I could not afford to furnish it without HP.

So a lot of my earlier life was scrimping and saving.

Why should the government cream off a large amount of what i had to work hard for?

Well, I'd guess that the actual bit that you did work for- the money that you paid for your house, index-linked to general inflation- would be, today, a sum well under the IHT threshold. OTOH, I imagine that the gain in the cash value of your house as a result of crazy-silly house price inflation is not something you lifted a finger to create, so I don't see why you should feel so proprietorial about it.

[ 22. August 2013, 19:20: Message edited by: Albertus ]

Posted by would love to belong (# 16747) on :

Albertus

Who did, then, lift a finger to create the crazy house price inflation and so deserves to reap it rewards?

Not taking you to task, just probing your thesis that some are entitled to the profit (those who lifted a finger) and some aren't (the rest, presumably).

Posted by Touchstone (# 3560) on :

quote:
quote:
Originally posted by Orfeo:
--------------------------------------------------------------------------------
Originally posted by Touchstone:
A dispute pretty much identical to this thread developed in my workplace a few months ago. All the above arguments were rehearsed and it got quite heated. Eventually an accountant colleague stepped in with the magisterial pronouncement :

"Some of us pay tax when we die so that all of us can pay less tax while we're still alive."

That shut us all up.
--------------------------------------------------------------------------------

But it's rubbish. The dead person isn't really paying tax.

Sorry to double post but previous post was in haste. I meant to respond further to this by saying that paying inheritance tax is something that the executor does on behalf of the deceased. The beneficiaries do not pay the government anything. Of course, the executor may also be a beneficiary.

I'm always rather mystified as to why this backwater of the tax system arouses such passion. ISTM that it is a sort of "aspirational tax" - after all, the vast majority of people (in the UK) will never be affected at all by inheritance tax, but maybe they like to think that they might be?

Posted by orfeo (# 13878) on :

quote:
Originally posted by Albertus:

quote:
Originally posted by leo:
Well, I paid £26K for my place in 1980. I inherited £6k for a deposit. My mortgage was 2 1/2 times my salary and was repaid at £25 per week and I could not afford to furnish it without HP.

So a lot of my earlier life was scrimping and saving.

Why should the government cream off a large amount of what i had to work hard for?
Well, I'd guess that the actual bit that you did work for- the money that you paid for your house, index-linked to general inflation- would be, today, a sum well under the IHT threshold. OTOH, I imagine that the gain in the cash value of your house as a result of crazy-silly house price inflation is not something you lifted a finger to create, so I don't see why you should feel so proprietorial about it.

So what would be the tax rate on Leo's windfall if he sold the house himself?

Posted by Gee D (# 13815) on :

quote:
Originally posted by Touchstone:
[QUOTE] Sorry to double post but previous post was in haste. I meant to respond further to this by saying that paying inheritance tax is something that the executor does on behalf of the deceased. The beneficiaries do not pay the government anything. Of course, the executor may also be a beneficiary.

But of course, payment of death duties reduces the amount which residuary beneficiaries receive, so in effect it is they who pay the tax.

Posted by Albertus (# 13356) on :

quote:
Originally posted by would love to belong:
Albertus

Who did, then, lift a finger to create the crazy house price inflation and so deserves to reap it rewards?

Not taking you to task, just probing your thesis that some are entitled to the profit (those who lifted a finger) and some aren't (the rest, presumably).

Well, that's more Leo's thesis than mine: I'd say that tax has to be taken somewhere and quite often that is from things that people have worked to achieve- Income Tax, most commonly.

The causes of house price inflation are complex and, I would argue, at least in part the result of a particular social and cultural attitude to residential property which successive governments have at best not challenged and at worst have actually fostered. One might make the argument that insofar as governments have encouraged or enabled house price inflation, it is all the more reasonable that those who have profited from it should pay part of their windfall back to the Treasury. But this argument- which has something in common with the principles which AIUI underpin the arguments for Land Value Taxation- would need to be supported by a detailed analysis which I don't have the capacity to carry out.

Someone else asked what the tax on Leo's windfall would be. Very broadly, the principle in the UK is that if you sell your home you don't pay Capital Gains Tax on any profit you've made, even if you then buy a cheaper home and pocket the difference.

Posted by QLib (# 43) on :

I have a friend who was born with a disability. How unfair. Fortunately we once had governments that cared about such things and so she was provided with subsidised housing built specially for people with disabilities. The houses were all a standard size, which means that she has a spare bedroom. And so she now has to face a benefit cut.

This country (the UK) is squeezing a few extra pounds a month from people like her, and you want us to cut taxes on people who inherit castles, mansions and houses worth millions? That is simply ridiculous.

Yes, it's nice to live in the home your parents and grandparents were brought up in. But loads of people are forced to sell up and move when they change jobs or get made redundance or otherwise have to downsize for economic reasons.

As someone else said upthread, people get plenty of warning about what is going to happen to their money when they die, and this is in any case, increasingly only a problem that is going to affect the super-rich as most of us are going to have to sell our homes to pay for care in our old age anyway. Why? Because the welfare system is being cut, cut, and cut again so that we can lower taxes. I'm afraid I don't have any spare tears to shed for the plight of those unlucky enough to inherit million-pound properties.

Posted by Touchstone (# 3560) on :

Orignally posted by G Dee

quote:
But of course, payment of death duties reduces the amount which residuary beneficiaries receive, so in effect it is they who pay the tax.

No, I’m afraid I don’t buy that. Inheritance tax is a tax on wealth, deferred until after our deaths. While we are still alive we can do whatever we wish with our money, including giving it to family members.

The ethical grounds for taxing wealth is a separate issue, but I’m afraid it’s hard for me to find any moral problem with a tax that makes a very few wealthy people (who have no further need of their wealth because they’re dead), a bit less wealthy. In any case, the treasury leaves open a number of loopholes by which payment can be avoided. It’s as if they’re saying “you only have to pay this tax after you die, and then only if you really want to.”

Frankly, if people leave estates with large I.T. liabilities, it’s their own fault. They should have given it away before they pegged out, or at the very least got themselves a better accountant. One of the responsibilities that goes with owning significant wealth is planning for what should happen to it after you’re gone.

If you own an asset which you can’t leave to your family because the tax on it will be unaffordable (a very rare occurrence) then don’t leave it to them. Find another way. We impose plenty of impossible financial dilemmas on the poor, this is one for the rich to worry about. Nice problem to have.

Posted by Gee D (# 13815) on :

Touchstone, I was picking up on your strictly correct statement that it is the executor who pays the tax, not the beneficiaries; none of your comments deal with my remark that in effect any tax is paid by residuary beneficiaries,

Don't forget duty payable on documents evidencing transfers of both real and personal property between living people, and the common provision that if such transfers are at less than a fair market price, fairly punitive rates of duty are applicable.

Posted by orfeo (# 13878) on :

quote:
Originally posted by Albertus:
Someone else asked what the tax on Leo's windfall would be. Very broadly, the principle in the UK is that if you sell your home you don't pay Capital Gains Tax on any profit you've made, even if you then buy a cheaper home and pocket the difference.

Right. So don't you think it's rather inconsistent that if a house is sold by the current owner, the owner reaps a windfall which (by your own reasoning) they haven't earned, but if the owner dies and passes the property on there's a potential for a large tax bill? Why should the value suddenly become taxable?

Posted by orfeo (# 13878) on :

quote:
Originally posted by Touchstone:
Orignally posted by G Dee

quote:
But of course, payment of death duties reduces the amount which residuary beneficiaries receive, so in effect it is they who pay the tax.

No, I’m afraid I don’t buy that. Inheritance tax is a tax on wealth, deferred until after our deaths. While we are still alive we can do whatever we wish with our money, including giving it to family members.

The ethical grounds for taxing wealth is a separate issue, but I’m afraid it’s hard for me to find any moral problem with a tax that makes a very few wealthy people (who have no further need of their wealth because they’re dead), a bit less wealthy. In any case, the treasury leaves open a number of loopholes by which payment can be avoided. It’s as if they’re saying “you only have to pay this tax after you die, and then only if you really want to.”

Frankly, if people leave estates with large I.T. liabilities, it’s their own fault. They should have given it away before they pegged out, or at the very least got themselves a better accountant. One of the responsibilities that goes with owning significant wealth is planning for what should happen to it after you’re gone.

If you own an asset which you can’t leave to your family because the tax on it will be unaffordable (a very rare occurrence) then don’t leave it to them. Find another way. We impose plenty of impossible financial dilemmas on the poor, this is one for the rich to worry about. Nice problem to have.

You've actually hit a couple of times here on one of the major reasons why I find specific 'death duties' so silly. It makes no sense to me, as I highlighted in my last post, that property transactions occurring before death and property transactions occurring as a result of death are treated differently.

Various pages I've found on the Australian system point out that we do, in fact, have various taxes that can be triggered by a death. But they're not death duties. They're the same taxes that can be incurred by the passing of property at any time, ie the fact that the transaction occurred as the result of a death is irrelevant.

That seems far more sensible than having this rigmarole where people need to make a guess about when they're going to die and hand off property a sufficient time beforehand, even though they're not actually done with that property.

Posted by aumbry (# 436) on :

quote:
Originally posted by orfeo:

quote:
Originally posted by Albertus:
Someone else asked what the tax on Leo's windfall would be. Very broadly, the principle in the UK is that if you sell your home you don't pay Capital Gains Tax on any profit you've made, even if you then buy a cheaper home and pocket the difference.
Right. So don't you think it's rather inconsistent that if a house is sold by the current owner, the owner reaps a windfall which (by your own reasoning) they haven't earned, but if the owner dies and passes the property on there's a potential for a large tax bill? Why should the value suddenly become taxable?

The exemption for capital gains tax merely recognises that if the owner sells his personal residence he is going to need the proceeds either to buy another home or move into a care home where bills have to be paid and taxing the sale would not make that possible. If taxed it would mean that individuals would have little incentive to trade down their home as they got older so as to make way for say young families. This is not relevant to an inheritor who usually will be at an age where they have their own property.

Where there is an unfairness with inheritance tax is the way exemptions work so that between married couples and civil partners there is an unlimited exemption. Such an exemption is not available to say a daughter who has given up a career, or had no career, in order to look after an aged parent but might well find it very difficult to afford to continue living in the family home if a charge to inheritance tax falls on the house on the death of the parent.

I see that Leo's definition of a poor person appears to mean himself !

Posted by Albertus (# 13356) on :

quote:
Originally posted by orfeo:

quote:
Originally posted by Albertus:
Someone else asked what the tax on Leo's windfall would be. Very broadly, the principle in the UK is that if you sell your home you don't pay Capital Gains Tax on any profit you've made, even if you then buy a cheaper home and pocket the difference.
Right. So don't you think it's rather inconsistent that if a house is sold by the current owner, the owner reaps a windfall which (by your own reasoning) they haven't earned, but if the owner dies and passes the property on there's a potential for a large tax bill? Why should the value suddenly become taxable?

Yes, of course I think it's inconsistent. I began this discussion thinking that there was a lot to be said for IHT. I still think it's pretty unobjectionable but you've persuaded me that wealth and transaction taxes, which take effect in people's lifetimes, make more sense. In particular, I'd like to see Capital Gains Tax on all home sales (perhaps with a higher liability threshold if you're selling your main home), not least as a way of damping house price speculation.

Posted by orfeo (# 13878) on :

quote:
Originally posted by aumbry:
I see that Leo's definition of a poor person appears to mean himself !

Not that much different to the fact that most people's definition of a rich person is somebody else.

I recently read about an Australian survey earlier this year. A lot people think that the rich should pay more tax. Of people who are actually in the top 5% of earners, around 40% agreed that the rich should pay more tax but many of these people told the same survey that THEY pay more than their fare share.

Personally I know I'm rich. I wouldn't know exactly where I fit on a percentile scale, but I was just able to take a 3-month overseas holiday and I'm well aware that's not very normal.

But my position against death duties has nothing to do with being rich. First, I live in a country where there's no sign that I will ever have to pay death duties. Reintroduction simply hasn't been a political issue here in subsequent decades. Second, I'm not actually very rich in regards to assets - I live in a fairly cheap house. Third, I'm childless and likely to remain so, meaning that anything of mine really IS going to be a windfall to nieces and nephews who also stand to inherit from their parents.

Posted by Crœsos (# 238) on :

quote:
Originally posted by orfeo:
Right. So don't you think it's rather inconsistent that if a house is sold by the current owner, the owner reaps a windfall which (by your own reasoning) they haven't earned, but if the owner dies and passes the property on there's a potential for a large tax bill? Why should the value suddenly become taxable?

Except that's not the case under most tax systems. Someone selling a house will usually have that sale taxed as capital gains. That's certainly the case for businesses who buy, renovate, and re-sell housing. Just because the inventory consists of houses doesn't mean income generated from their sale is non-taxable. The same is usually held true for personal residences, though purchase and re-sale are usually separated by a longer span.

Posted by Marvin the Martian (# 4360) on :

quote:
Originally posted by Touchstone:
Frankly, if people leave estates with large I.T. liabilities, it’s their own fault. They should have given it away before they pegged out

Inheritance tax applies to gifts given up to seven years before the person's death.

My wife was given a piece of jewellery by her great uncle when we visited him last year. When he died some months later we were forced to get it valued in order to determine whether we should pay any inheritance tax on it.

Posted by Touchstone (# 3560) on :

quote:
Originally posted by Albertus:
Yes, of course I think it's inconsistent. I began this discussion thinking that there was a lot to be said for IHT. I still think it's pretty unobjectionable but you've persuaded me that wealth and transaction taxes, which take effect in people's lifetimes, make more sense. In particular, I'd like to see Capital Gains Tax on all home sales (perhaps with a higher liability threshold if you're selling your main home), not least as a way of damping house price speculation.

I broadly agree with this - there is really no reason why unearned increases in house values should not be liable to taxation (main residences are not liable to CGT in the UK, second homes and rental properties are). Taxing the gains made when you sell your home would certainly be fairer than taxing the price when you buy it (i.e. stamp duty), and might help make houses more affordable to mere mortals. Unfortunately I don't see it being politically possible in a culture that regards making a killing from house price inflation as an entirely good thing.

Posted by Touchstone (# 3560) on :

quote:

Originally posted by Marvin the Martian:

Inheritance tax applies to gifts given up to seven years before the person's death.

My wife was given a piece of jewellery by her great uncle when we visited him last year. When he died some months later we were forced to get it valued in order to determine whether we should pay any inheritance tax on it.

I don't wish to be insensitive about your loss, but if you receive a valuable gift you should get it valued anyway for insurance purposes. I've come across the seven years rule myself - I was told that it exists to dissuade people from coercing their vulnerable, moribund relatives into giving away their property. (It also protects the taxman's interest, of course...) It's one reason why we all need to plan bequests and gifts carefully with appropriate advice.

Posted by Marvin the Martian (# 4360) on :

It wasn't valuable, except for sentimental reasons. That was the stupidest part of the whole damn thing.

Posted by Mere Nick (# 11827) on :

The UK inheritance tax does look very nasty when you look at the rate and at what size of an estate the tax kicks in.

Does the queen own Buckingham Palace, Windsor Castle, and the like?

[ 23. August 2013, 16:10: Message edited by: Mere Nick ]

Posted by Higgs Bosun (# 16582) on :

quote:
Originally posted by Mere Nick:
The UK inheritance tax does look very nasty when you look at the rate and at what size of an estate the tax kicks in.

Does the queen own Buckingham Palace, Windsor Castle, and the like?

There is a distinction, I believe, between that which is own by the monarch by right of being the monarch, and that which is owned by the individual. Buckingham Palace is owned by the Monarch, but Sandringham by Elizabeth as an individual.

Posted by Touchstone (# 3560) on :

quote:

Orinally posted by Mere Nick

The UK inheritance tax does look very nasty when you look at the rate and at what size of an estate the tax kicks in.

Does the queen own Buckingham Palace, Windsor Castle, and the like?

It affects less than 5% of estates and raises about £2.9 billion p.a. (I got this from an article in the Daily Telegraph - their take on it was "Shock horror, look how much the grave robbers are stealing", my reaction was "Shrug".)

The queen does not have to pay any tax at all but I believe she voluntarily pays some. I don't know if it outweighs what the royals get in welfare payments, sorry the civil list.

[/QUOTE]

Posted by Higgs Bosun (# 16582) on :

quote:
Originally posted by Penny S:
I seem to remember there was something about when IHT should be paid with regard to the granting of probate which didn't seem to make sense - surely it can't be that the tax must be paid before there is access to any monies?

It true that the executors of the estate normally cannot sell or distribute the assets until the grant of probate has been received, and this requires that IHT is paid beforehand. There is an exception for funeral expenses. Also, it is also possible to get court permission to sell assets prior to the grant. My sister and I did this in order to sell our parent's house; the proceeds of the sale paid the IHT. Most of the residue (to use the technical term) then was transferred to us.

One curiosity of estate taxation is that the residuary legatees (those receiving some proportion of the estate which remains after specific bequests) have to pay income tax on any estate income.

Posted by Higgs Bosun (# 16582) on :

quote:
Originally posted by Touchstone:
[
The queen does not have to pay any tax at all but I believe she voluntarily pays some. I don't know if it outweighs what the royals get in welfare payments, sorry the civil list.

[/QUOTE]

I think the lack of tax liability is because the income from the Crown Estates was transferred directly to the Treasury some years ago, and as a result the royals were let off Income Tax.

Posted by Merchant Trader (# 9007) on :

quote:
Originally posted by Penny S:
I seem to remember there was something about when IHT should be paid with regard to the granting of probate which didn't seem to make sense - surely it can't be that the tax must be paid before there is access to any monies?

Oh yes it can. So I am the Executor of my Father's Estate which consist of a property and some monies but luckily no IHT is due. I could not access any money before the grant of probate.
However, all expenses have had to be paid by me for the 6 months it has taken to get Probate. I have had to borrow £7k just to fund this - running a house and making it saleable is not without cost. In addition if IHT had been due that would have had had to have been paid before Probate, I am lucky the house was not worth more!!!!
I am not wealthy enough to have the cash to meet these expenses but I am luckily to be wealthy enough to borrow. What if I was poor and did not have a good credit rating?

Posted by Penny S (# 14768) on :

So I remembered correctly. It didn't affect us. There were expenses, of course, and I had the funds to deal with them from matured savings and the lump pension sum, as I had recently retired: these were paid out to me before we split the rest.

Could we have used the otherwise frozen bank account for HMRC?

Posted by Merchant Trader (# 9007) on :

quote:
Originally posted by Penny S:
So I remembered correctly. It didn't affect us. There were expenses, of course, and I had the funds to deal with them from matured savings and the lump pension sum, as I had recently retired: these were paid out to me before we split the rest.

Could we have used the otherwise frozen bank account for HMRC?

Apparently not. I never did have to test it but that was the advice I got. Its particularly hard when the Executor is not even a beneficiary. I would like to know if there is a way around this as in other family circumstances we may not be so lucky e.g. if I died, I am sure there would be death duties on the house, I have no cash and my children and the Executors have no money either. How we provide for this - thinking of taking out life assurance just for the death duties but it seems v costly.

Posted by Mere Nick (# 11827) on :

While it appears UK tax law limits the amount that can be gifted tax free, maybe it would help out if you started gifting a small part of the ownership of the house each year to each of your heirs. It could also help reduce the value for inheritance tax purposes since having many owners could reduce the value of your portion, especially if the time comes to where you own a minority interest.

When I look online at what the queen owns, it just says the royal family. Maybe they are doing that very thing I have described.

You should go see a pro about that.

Posted by Justinian (# 5357) on :

quote:
Originally posted by CL:
Being well acquainted with inheritance tax through a previous job I find that a more accurate appellation is grave robbing.

As literally the only moral problem with graverobbing is that it's normally done by private individuals taking things for private collections rather than for the benefit of all I have no problem with the description.

A better term than graverobbing would be recycling. Recycling of materials locked away from the world by self-aggrandizing tosspots who want to steal things of beauty and wealth out of the world when they die so no one else can have them. Here's to graverobbers, reclaimers of stolen posessions from the ultimate thieves.

And as long as there is a decent excess, inheritance tax comes under the same category.

quote:
Originally posted by Marvin the Martian:
My father was brought up in the same house that his father and grandfather had been brought up in - the house had stayed in the family for three generations. You couldn't do that today - each successive generation would have to sell up and move to a smaller house merely in order to pay the tax.

Is that fair?

Compared to one side of my family not having a penny to their name, yes. Just because your grandparents did something good doesn't mean that the kids get to coast on that ad infinitum.

If your family want to earn enough to maintain that house - and maintainance of the house includes earning enough to pay the inheritance tax where's the problem.

quote:
Originally posted by Anglo Catholic Relict:
It is in effect a tax on the dead, and in my view iniquitous. Something which Richard Hunne objected to, most strongly, and look where it got him.

Dead people can not and should not own property. Where's the inequity. The dead are dead.

quote:
Originally posted by Marvin the Martian:
I fail to see why that would be necessary. But then, I don't hate the idea of people getting richer, or insist that every time money changes hands the government should take a cut.

Given that that money that changes hands only does so because it's backed by the government and the government ensures its value and the fair trading I don't see the theoretical problem. You want all the benefits of good government and modern society without having to pay for them.

quote:
Originally posted by orfeo:
But it's rubbish. The dead person isn't really paying tax.

And neither is the recipient. The recipient is merely organising that the tax is paid in exchange for a pretty huge windfall.

This doesn't mean that there are no problems with the implementation.

And quoting two people for truth:

quote:
Originally posted by Adeodatus:
I think it's a pity that whoever spent their lives building up a hoard amounting to £15million didn't put it to good use while they were alive. I may be doing them an injustice, of course: perhaps the £15million was what little was left of the untold millions they spent feeding and clothing the poor. But I doubt that, and you're welcome to call me cynical.

quote:
Originally posted by Touchstone:
"Some of us pay tax when we die so that all of us can pay less tax while we're still alive."

Posted by Chesterbelloc (# 3128) on :

quote:
Originally posted by Justinian:

quote:
Originally posted by CL:
Being well acquainted with inheritance tax through a previous job I find that a more accurate appellation is grave robbing.
As literally the only moral problem with graverobbing is that it's normally done by private individuals taking things for private collections rather than for the benefit of all I have no problem with the description.

A better term than graverobbing would be recycling. Recycling of materials locked away from the world by self-aggrandizing tosspots who want to steal things of beauty and wealth out of the world when they die so no one else can have them. Here's to graverobbers, reclaimers of stolen posessions from the ultimate thieves.

Great. I'm off to rip the wedding ring off your dead granny's finger, then. Ok by you?

Posted by Crœsos (# 238) on :

Graverobbing is like comedy: timing is everything. If you wait long enough you get called an "archæologist".

Posted by orfeo (# 13878) on :

quote:
Originally posted by Mere Nick:
While it appears UK tax law limits the amount that can be gifted tax free, maybe it would help out if you started gifting a small part of the ownership of the house each year to each of your heirs.

While I'm sure some of my fellow lawyers would delight in the extra work created by people gifting their houses brick by brick, it remains a mystery to me why a government would wish to encourage this kind of complexity.

I mean, I agree with you, this is a strategy that suggests itself. But I think the fact that this would be a good strategy is one of the things that's bad about the tax design.

Making the ownership of people's homes complex creates more chances for disagreements and arguments. You'll have children partially owning homes they don't live in, and then feeling like they've got some say in the running of the house, leading to friction with parents who think it's still THEIR house.

[ 24. August 2013, 00:53: Message edited by: orfeo ]

Posted by Leorning Cniht (# 17564) on :

quote:
Originally posted by orfeo:

Making the ownership of people's homes complex creates more chances for disagreements and arguments. You'll have children partially owning homes they don't live in, and then feeling like they've got some say in the running of the house, leading to friction with parents who think it's still THEIR house.

There are, of course, plenty of examples of children arguing with their parents and ultimately throwing them out of "their" house, and plenty more of the children going bankrupt and having to sell this spare investment property they seem to have acquired in order to pay off their debts.

Posted by Gee D (# 13815) on :

quote:
Originally posted by Leorning Cniht:
There are, of course, plenty of examples of children arguing with their parents and ultimately throwing them out of "their" house, and plenty more of the children going bankrupt and having to sell this spare investment property they seem to have acquired in order to pay off their debts.

A useful source of work, as often there are at least 3 completely different interests involved, each requiring separate representation, and the activity is much to be encouraged.

I don't know anything of real property law where you are
Mere Nick, but how you can give your house over in bits and pieces is not straight forward here, and again would be a nicely profitable piece of work.

Posted by mertide (# 4500) on :

One option here can be to create a family trust for the ownership of the asset, that way only the directors change on their death, the ownership entity continues. Doesn't stop the arguments, and lots of work for lawyers, though. The handing down of a single property through generations seems to imply either low fertility or some pretty unfair inheritance patterns.

Posted by Mere Nick (# 11827) on :

quote:
Originally posted by Gee D:
I don't know anything of real property law where you are Mere Nick, but how you can give your house over in bits and pieces is not straight forward here, and again would be a nicely profitable piece of work.

My mother owned a 1/3 interest in some undeveloped land and each year she transferred a portion of that 1/3 to an irrevocable trust that had my brothers and me as beneficiaries. I don't know why you couldn't do that with any other real property though I suspect there isn't a lender in the business that would let you do that if there is a mortgage on it. She did it over several years so that there wouldn't be any gift taxes.

Posted by Gee D (# 13815) on :

I was thinking of a trust, with changing entitlements as time progressed. If the beneficial interest changed entirely upon death, then duty used be payable here, and presumably in other jurisdictions. You'd need to build in barriers to prevent using an entitlement as a security, but still avoid the pitfalls in some discretionary trusts. You'd also need somehow to avoid capital gains tax should the trust property be sold and the proceeds used to buy a different residence, and also to ensure that the parents continued to have rights of residence during their lifetimes. Lots of other difficulties to deal with also. Quite a few hours work in that, and at my usual rate we could afford to go to the butcher's every now and then.

Posted by Mere Nick (# 11827) on :

quote:
Originally posted by orfeo:
While I'm sure some of my fellow lawyers would delight in the extra work created by people gifting their houses brick by brick, it remains a mystery to me why a government would wish to encourage this kind of complexity.

If you make a terrible mistake and actually come face to face with one of our politicians the chances are best that he or she used to be a lawyer.

Complexity doesn't seem to matter to them. Take the Internal Revenue Code or Obamacare, for examples.

[ 24. August 2013, 04:30: Message edited by: Mere Nick ]

Posted by Mere Nick (# 11827) on :

Much of what would appear to be a good idea in the UK and maybe some other countries with brazenly rapacious inheritance/estate/income tax codes wouldn't be as needed here because of the size of the estates that can pass to heirs tax free, step up in basis rules, and couples filing jointly being able to make up to $500k tax free profits on the sale of their homes.

Posted by Haydee (# 14734) on :

The 'family home'?

My mother sold the house my brother and I grew up in after living there for 25 years. Of course it was an emotional wrench, but why on earth would she carry on living in a 4-bed roomed house when it was just her? And do I get it, or my brother (I am NOT going to share a house with him for the sake of both of us...).

As he lives in London and I live in South Africa (and the house is in Devon) perhaps we should dismantle it and split up the building material? Though as it is made of mud (or 'cob' to give it the fancy name) I'm not sure it would travel well.

My parents are very generous and give us their tax-free gift entitlements most years - but that is more than I think I have a right to expect. They 'gave' me a good education and good nutrition/ healthcare etc which is more than many are given. I am now a fully functioning adult and it is up to me to make my own way (and take responsibility for the upbringing of my children).

Anything extra is a windfall, which I am content to share with those who have less than me (in the shape of funding the NHS, social security etc). I am not so happy about some Gvnt decisions about spending, but that is a separate issue from where the money comes from.

Posted by Anglo Catholic Relict (# 17213) on :

quote:
Originally posted by Justinian:
quote:
Originally posted by Anglo Catholic Relict:
It is in effect a tax on the dead, and in my view iniquitous. Something which Richard Hunne objected to, most strongly, and look where it got him.
Dead people can not and should not own property. Where's the inequity. The dead are dead.

http://en.wikipedia.org/wiki/Richard_Hunne

Posted by Ahleal V (# 8404) on :

quote:
Originally posted by Justinian:
Just because your grandparents did something good doesn't mean that the kids get to coast on that ad infinitum.

Whilst I realise I'm a little late to this party, this line from Justinian hit me rather hard. Why should this be the case? Is it not human principle to pass on what you have gathered to the following generation, and in doing so, bettering their life? Whilst it can be read in both ways, I would think it not only a human principle, but a biblical one.

quote:
A good man leaves an inheritance to his children's children, but the sinner's wealth is laid up for the righteous. <Proverbs 13:22>

The objection seems to be, 'well, the descendants didn't work for it, so it is undeserved.' So what? Many things in this life are undeserved - intelligence, physical ability, good marriages, divorces - the financial outcome of divorces! - sudden and unexpected disability etc.

Whilst you're suggesting that this the post-death distribution of wealth is a way of evening out some of our undeserved problems, I find it more a condemnation by the government of those who have worked above and beyond to improve their resources, and to pass this on to their next of kin. If it's going to be taxed, why work hard to make those resources? Or if you do, do we really think it better that people just idle it away?!

The reason this hit so hard is that I am painfully aware that the only way that those I know in my situation will only ever be able to have a home is through investments made a generation or so before us. And likely, the the only way my descendants will probably be able to afford to go to university is through those same former investments.

x

AV

[ 24. August 2013, 09:31: Message edited by: Ahleal V ]

Posted by Arethosemyfeet (# 17047) on :

But, Ahleal, surely if inheritance tax eliminates that advantage, then no-one will be able to buy a house or go to university, and the public policies that have made both of those things excessively expensive will have to change? What you're effectively saying is that it's ok for housing and education to be prohibitively expensive so long as you have access to sufficient funds for yourself and your descendants. I'm afraid that sounds an awful lot like "I'm alright, Jack; pull up 'ladder".

Posted by Ahleal V (# 8404) on :

quote:
Originally posted by Arethosemyfeet:
...as you have access to sufficient funds for yourself and your descendants. I'm afraid that sounds an awful lot like "I'm alright, Jack; pull up 'ladder".

I certainly don't want the ladder to be pulled up. I'm sorry if my post came across that way, I didn't mean it to.

TBH, I've been working under the assumption over the last few years that the government were going to raise the IHT bar to £1m, as was promised in 2010. Obviously, this hasn't happened, which I presume is due to the crash, and the austerity measures taken.

I'm afraid that the last few months of meeting with solicitors regarding IHT has sharpened my feelings regarding this matter. Again, I can't help but think it is iniquitous for the government to tax what has already been taxed. Let them tax the *really* super-rich, or the corporations.

x

AV

[ 24. August 2013, 10:00: Message edited by: Ahleal V ]

Posted by QLib (# 43) on :

Ahleal - talk about proof-texting! you shoot yourself in the foot when you quote one verse from the bible to justify not wanting to give part of your wealth to the communuty for the building of schools, hospitals, a police service, a fire service, courts, roads and bridges. The bible is generally perfectly clear in what it says about giving to the poor and succouring widows and orphans.

There's a balance to be struck, as with everything. Irrespective of tax, there's not a lot of point in scrimping and saving once you have enough to keep you comfortable if you're lucky enough to have a long life (and that's actually quite a lot). And, anyway, it's not as though the government is going to take the whole lot. Inheritance tax, as in the UK, does actually allow you to leave a pretty fair whack for your children and children's children - if you're lucky enough to have those. But don't forget that - even if you leave them as millionaires, they will still need a society to live in, and let's hope (for the sake of their souls) that they prefer one where they don't have to step over people sleeping rough on the street as they make their way to their luxury penthouse apartments.

ETA: X-posted with your last post, but I don't think it makes any difference. There has to be a boundary somewhere and the UK's boundary of £325,000 seems pretty fair to me. Lots of things are taxed twice. My salaray is taxed and then I pay VAT on a variety of goods. Nothing is ever going to be 100% fair. Campaign for a change by all means, but I don't know how people manage not to feel ashamed of publicly complaining about a problem most people would love to have.

[ 24. August 2013, 10:10: Message edited by: QLib ]

Posted by Arethosemyfeet (# 17047) on :

£325000 is more than enough to cover a university education and a 10% deposit on a house for 3 children in most parts of the country - and with current laws they'll still keep 60% of anything over that amount.

The question you have to answer, given that we still have a budget deficit, is who should pay instead of those who are getting a massive windfall they have done nothing to earn?

Posted by Higgs Bosun (# 16582) on :

I'm glad that there has been some theological input on this thread. Perhaps I can remind us:

"Do not store up for yourselves treasures on earth...but store for yourselves treasures in heaven"

"life does not consist in an abundance of possessions"

"the deceitfulness of wealth chokes the word"

There is a story about a man who built barns to store his abundance. He is known as the Rich Fool.

The system of Jubilee in the OT law means that property reverts to its original owning family each Jubilee. This seems to be ensure that each family has access to the means of production, and that no-one can accumulate significantly more wealth than others in the longer term.

It seems to be that IHT is not out of tune with these.

Posted by Higgs Bosun (# 16582) on :

quote:
Originally posted by Arethosemyfeet:
£325000 is more than enough to cover a university education and a 10% deposit on a house for 3 children in most parts of the country - and with current laws they'll still keep 60% of anything over that amount.

I might add to this that the argument about "how can children afford to go to university or buy a property with IHT" is incorrect in another way. Most people (with significant assets) die when older than 60 years of age, when their children will have already gone to university and have already reached the age when they would need to buy dwelling. So, what is happening is that before their parents die, the children are having to rely on "The Bank of Dad".

People who die younger, with dependents, are more likely to be in debt than have significant assets.

Posted by Mere Nick (# 11827) on :

quote:
Originally posted by Higgs Bosun:
I'm glad that there has been some theological input on this thread. Perhaps I can remind us:

"Do not store up for yourselves treasures on earth...but store for yourselves treasures in heaven"

"life does not consist in an abundance of possessions"

"the deceitfulness of wealth chokes the word"

There is a story about a man who built barns to store his abundance. He is known as the Rich Fool.

The system of Jubilee in the OT law means that property reverts to its original owning family each Jubilee. This seems to be ensure that each family has access to the means of production, and that no-one can accumulate significantly more wealth than others in the longer term.

It seems to be that IHT is not out of tune with these.

As long as you leave out teachings about covetousness and theft, maybe.

Posted by Arethosemyfeet (# 17047) on :

quote:
Originally posted by Mere Nick:
As long as you leave out teachings about covetousness and theft, maybe.

Taxation isn't theft, and ensuring that everyone has enough to live on, healthcare and education is not covetousness.

Posted by Mere Nick (# 11827) on :

quote:
Originally posted by Arethosemyfeet:

quote:
Originally posted by Mere Nick:
As long as you leave out teachings about covetousness and theft, maybe.
Taxation isn't theft, and ensuring that everyone has enough to live on, healthcare and education is not covetousness.

So if no one ever dies again Johnny can't learn to read or get his tonsils taken out? Interesting concept.

Posted by Arethosemyfeet (# 17047) on :

quote:
Originally posted by Mere Nick:

quote:
Originally posted by Arethosemyfeet:

quote:
Originally posted by Mere Nick:
As long as you leave out teachings about covetousness and theft, maybe.
Taxation isn't theft, and ensuring that everyone has enough to live on, healthcare and education is not covetousness.
So if no one ever dies again Johnny can't learn to read or get his tonsils taken out? Interesting concept.

Did anyone say that inheritance tax was the only valid form of taxation?

Posted by Mere Nick (# 11827) on :

quote:
Originally posted by Arethosemyfeet:
Did anyone say that inheritance tax was the only valid form of taxation?

No, but this thread is about inheritance tax.

Posted by cliffdweller (# 13338) on :

quote:
Originally posted by Mere Nick:

quote:
Originally posted by Arethosemyfeet:

quote:
Originally posted by Mere Nick:
As long as you leave out teachings about covetousness and theft, maybe.
Taxation isn't theft, and ensuring that everyone has enough to live on, healthcare and education is not covetousness.
So if no one ever dies again Johnny can't learn to read or get his tonsils taken out? Interesting concept.

If no one ever dies again than we're going to have way more interesting challenges to contend with than simply how Johnny will learn to read or get his tonsils taken out (do they still do that???)

Posted by Marvin the Martian (# 4360) on :

quote:
Originally posted by QLib:
...to justify not wanting to give part of your wealth to the communuty for the building of schools, hospitals, a police service, a fire service, courts, roads and bridges.

That's the thing though - everybody will have given a significant part of their wealth to the government. Income tax and national insurance take over a third of it straight away. Add on VAT, council tax, taxes on alcohol, tobacco and petrol and all the other extra taxes they use to wring as much out of us as they possibly can, and you're probably looking at every single person in the country having over half of their wealth taken off them by the taxman during their lives.

Is that not enough?

Posted by Touchstone (# 3560) on :

quote:

Originally posted by Mere Nick:
quote:
--------------------------------------------------------------------------------
Originally posted by Arethosemyfeet:
Did anyone say that inheritance tax was the only valid form of taxation?
--------------------------------------------------------------------------------

No, but this thread is about inheritance tax.

In the UK we believe in the virtues of a mixed tax system. This is to ensure that taxation does not bear down too heavily on any one group. Personally I think that our current tax system is very biased in favour of the rich (e.g. the iniquitous rate of VAT is particularly oppressive to widows and orphans).

IHT must be considered as part of this balance, and it is a useful part of the mix because it is paid only by the rich. To reiterate, less than 5% of UK estates are liable to it. For the large majority of us, it isn't a major concern.

Even then, the rich have many perfectly legal ways of avoiding it. Personally I think these loopholes should be closed, with the possible exception of tax relief on charitable donations. This would mean that more estates have to pay IHT and the rate could be lowered (and maybe the threshold raised), but IMO it should always be a part of the tax portfolio.

Posted by cliffdweller (# 13338) on :

quote:
Originally posted by Marvin the Martian:

quote:
Originally posted by QLib:
...to justify not wanting to give part of your wealth to the communuty for the building of schools, hospitals, a police service, a fire service, courts, roads and bridges.
That's the thing though - everybody will have given a significant part of their wealth to the government. Income tax and national insurance take over a third of it straight away. Add on VAT, council tax, taxes on alcohol, tobacco and petrol and all the other extra taxes they use to wring as much out of us as they possibly can, and you're probably looking at every single person in the country having over half of their wealth taken off them by the taxman during their lives.

Is that not enough?

Do you have something particular you'd be willing to give up? Not something that only applies to "other people", but one of the thousands of often invisible benefits you enjoy every day that you'd be willing to forgo to lower taxes?

Budgeting is always tiresome. It's tiresome on the national scale, it's tiresome on the provincial/state level, it's tiresome on the local level. Church budgets are tiresome and so are household budgets. They always, always require hard choices about which good things will be eliminated to allow for which even greater good things. The "fat" everyone assumes is so prevalent and easily eliminated always turns out to be elusive and highly subjective. And yet budgets are necessary, important, and as has been said recently "moral documents". They are the way we define, as a family, a church, a community, and a nation, what we value, what we believe, what we are willing to invest in.

So answering questions like when is it "enough" is pretty meaningless until you start talking specifics. And as long as those specifics are always coming off of someone else's plate, I'm really not all that interested.

Posted by Arethosemyfeet (# 17047) on :

quote:
Originally posted by Marvin the Martian:

quote:
Originally posted by QLib:
...to justify not wanting to give part of your wealth to the communuty for the building of schools, hospitals, a police service, a fire service, courts, roads and bridges.
That's the thing though - everybody will have given a significant part of their wealth to the government. Income tax and national insurance take over a third of it straight away. Add on VAT, council tax, taxes on alcohol, tobacco and petrol and all the other extra taxes they use to wring as much out of us as they possibly can, and you're probably looking at every single person in the country having over half of their wealth taken off them by the taxman during their lives.

Is that not enough?

The % of GDP that is taken in tax is 38.9% as of 2011, nowhere near half. And very little of that is a tax on wealth, most is income or spending related. Government spending is closer to half, at 47.3% (the difference being a combination of deficit spending, sale of assets, and complicated economic things I don't quite understand). So, yes broadly speaking taxing about half of GDP, as Denmark and Sweden do, and cutting spending on blowing people up, might be enough. Unfortunately we're not even close to that figure right now.

Whilst the marginal tax rate on your income might be close to a third, the actual rate will be lower.

Posted by Ricardus (# 8757) on :

I can't persuade myself to see IHT as a great iniquity, for reasons expressed by others on this thread, but ISTM there are two problems with it:

- Firstly, the ways round it are so institutionalised that they can't really be called avoidance any more, but they do require forward planning. So ISTM it's really a tax on rich people who die unexpectedly, which seems slightly topsy-turvy;

- Secondly, I do think the double taxation problem that Marvin alludes to is a genuine problem.

In general, ISTM we tax the generation of wealth (e.g income tax or corporation tax) to reflect that the state had a part in creating that wealth, and we tax the ownership of wealth (e.g. council tax) to reflect that property generally involves, at least indirectly, taking some asset out of circulation that in the natural order of events would belong to the common weal (e.g. land or natural resources).

IHT doesn't really fall into either of these categories. Inheritance involves the transfer but not the generation of wealth, and if we think large estates ought to be taxed as a form of wealth tax, then that tax should apply all the time, not just because the owner happens to die. This makes it look more like a 'because we can' kind of tax.

[ 25. August 2013, 16:01: Message edited by: Ricardus ]

Posted by Crœsos (# 238) on :

quote:
Originally posted by Ricardus:
In general, ISTM we tax the generation of wealth (e.g income tax or corporation tax) to reflect that the state had a part in creating that wealth, and we tax the ownership of wealth (e.g. council tax) to reflect that property generally involves, at least indirectly, taking some asset out of circulation that in the natural order of events would belong to the common weal (e.g. land or natural resources).

Except taxes aren't applied to "the generation of wealth", just the transfer of money from one party to another. Very often this is associated with the generation of wealth, but not necessarily. For instance, the large salaries drawn by CEOs who drive their companies into the ground are still taxable, even though they were derived from the destruction of wealth.

Posted by orfeo (# 13878) on :

quote:
Originally posted by Arethosemyfeet:

quote:
Originally posted by Marvin the Martian:

quote:
Originally posted by QLib:
...to justify not wanting to give part of your wealth to the communuty for the building of schools, hospitals, a police service, a fire service, courts, roads and bridges.
That's the thing though - everybody will have given a significant part of their wealth to the government. Income tax and national insurance take over a third of it straight away. Add on VAT, council tax, taxes on alcohol, tobacco and petrol and all the other extra taxes they use to wring as much out of us as they possibly can, and you're probably looking at every single person in the country having over half of their wealth taken off them by the taxman during their lives.

Is that not enough?
The % of GDP that is taken in tax is 38.9% as of 2011, nowhere near half. And very little of that is a tax on wealth, most is income or spending related. Government spending is closer to half, at 47.3% (the difference being a combination of deficit spending, sale of assets, and complicated economic things I don't quite understand). So, yes broadly speaking taxing about half of GDP, as Denmark and Sweden do, and cutting spending on blowing people up, might be enough. Unfortunately we're not even close to that figure right now.

Whilst the marginal tax rate on your income might be close to a third, the actual rate will be lower.

Or, you could go the other way, cut the inheritance tax, drop your tax as percentage of GDP to around our 22% which is Australia's level, and still end up looking like you're in a much better financial state (although the Opposition wouldn't have you believe that...).

Yes, I've found it slightly incongruous to have all these people bleating about how badly inheritance tax is needed. All the time I've been thinking "well no, you don't and we're doing fine". But now that I know what your tax percentage of GDP is, I really think you don't actually need inheritance tax if you don't want it.

Look, obviously it involves decisions about what government does and doesn't supply. Scandinavian countries have a high tax rate and they also have a very high level of government service. For the UK, the NHS might be a significant factor. But Australia is still a somewhat socialist country with a level of welfare that would have a right-wing American labelling us as a bunch of Commies, and we get by on a lower level of taxation, and we've got by without inheritance tax for 35 whole years. So I don't buy these arguments about how essential the money from death duties is.

I think you all just enjoy taxing the rich. Suddenly my traditional view of myself as left-leaning is being challenged.

Posted by orfeo (# 13878) on :

By the way, this page has a chart for the tax as percentage of GDP figures for all OECD countries, as of 2010.

Posted by Marvin the Martian (# 4360) on :

quote:
Originally posted by cliffdweller:
Do you have something particular you'd be willing to give up?

Aircraft carriers. Bombs and guns and soldiers to fuck up various parts of the Middle East. MP's expenses. Quangos. Ofsted. How many billion pounds per year (that the rest of us could keep in our back pockets) am I up to so far?

And as, for some reason, you're asking for me to drop something that I specifically want to keep, OK - I'll surrender HS2 if you surrender inheritance tax. Deal?

The daft thing is, I'm never going to be affected by IHT. Neither my parents nor my in-laws are rich enough for it to come into effect. And to be honest, I'd vote for it to be doubled if it meant I'd get a reduction in my personal tax bill. But every now and then I argue about things from an ethical standpoint rather than a practical one, and this is one of those times.

Posted by Marvin the Martian (# 4360) on :

quote:
Originally posted by orfeo:
I think you all just enjoy taxing the rich.

Enjoy? It's what they fucking live for. If there weren't any rich people to attack and demonise their lives wouldn't have any purpose. Sad, really.

Posted by orfeo (# 13878) on :

I just checked that paper I mentioned on the first page of the thread, because my memory was triggered, and...

Yep. Sweden. Sweden abolished death duties in 2005. High taxing, Scandinavian country decided it could do without the money.

Posted by Justinian (# 5357) on :

quote:
Originally posted by Chesterbelloc:
Great. I'm off to rip the wedding ring off your dead granny's finger, then. Ok by you?

I'll be impressed if you can reconstitute her from her ashes.

quote:
Originally posted by Marvin the Martian:
]That's the thing though - everybody will have given a significant part of their wealth to the government. Income tax and national insurance take over a third of it straight away. Add on VAT, council tax, taxes on alcohol, tobacco and petrol and all the other extra taxes they use to wring as much out of us as they possibly can, and you're probably looking at every single person in the country having over half of their wealth taken off them by the taxman during their lives.

Is that not enough?

If you object to taxation, you can look at how much of the wealth you have you owe to the society you live in. You didn't invent the language you use. You didn't invent electricity. You didn't invent the car. You didn't invent the refrigerator.

You yourself are responsible for very little of your success. If you were relying solely on your own merits you would be living as a hunter gatherer, possibly having possibly got the benefits of fire.

Now would it be a good idea to tax you to the extent that there was no difference between your income and that of a hunter gatherer? Hell, no. That wouldn't lead to good results for anyone. But more than 90% of the difference in living standard between you and a hunter gatherer is down to the society you live in, the society that is maintained by taxes. The rest of it is being in the right place at the right time. And one of the ways we maintain this as being the right place and the right time for people is through paying for it by taxation.

quote:
Originally posted by Ahleal V:
Whilst I realise I'm a little late to this party, this line from Justinian hit me rather hard. Why should this be the case? Is it not human principle to pass on what you have gathered to the following generation, and in doing so, bettering their life?

If you are taxed you are passing on what you have gathered to the following generation. The following generation of humans. And if you've personally gathered more than £325,000 after paying for your childrens' upbringing and everything else, I want to know how, why, and who you exploited to get to that point.

quote:
The objection seems to be, 'well, the descendants didn't work for it, so it is undeserved.' So what? Many things in this life are undeserved - intelligence, physical ability, good marriages, divorces - the financial outcome of divorces! - sudden and unexpected disability etc.

Translation: Life isn't fair. So we shouldn't try to make it more fair, especially not with fungible assets that will have far more of an impact on the needy.

quote:
The reason this hit so hard is that I am painfully aware that the only way that those I know in my situation will only ever be able to have a home is through investments made a generation or so before us. And likely, the the only way my descendants will probably be able to afford to go to university is through those same former investments.

Alternatively the speculated houses that have been inflated out of the reach of people our age get sold off - and the inheritance tax pays for university tuition fees.

quote:
Originally posted by Marvin the Martian:
The daft thing is, I'm never going to be affected by IHT. Neither my parents nor my in-laws are rich enough for it to come into effect. And to be honest, I'd vote for it to be doubled if it meant I'd get a reduction in my personal tax bill. But every now and then I argue about things from an ethical standpoint rather than a practical one, and this is one of those times.

The second irony is that I might just be affected by it. On the other hand I'm arguing a moral stance here too.

quote:
Originally posted by orfeo:
Or, you could go the other way, cut the inheritance tax, drop your tax as percentage of GDP to around our 22% which is Australia's level

[Citation Needed] - the numbers I get are around 30% for Australia.

quote:
For the UK, the NHS might be a significant factor.

Surprisingly not. Total spend on healthcare in the UK and Australia as a proportion of GDP is about the same (9% Australia, 9.3% UK) - with only a slightly higher proportion spent by the UK government.

Posted by Leorning Cniht (# 17564) on :

IHT is, in my opinion, a quite astonishingly bad wealth tax. The truly wealthy have a large number of options available to them to be able to reduce its effect, meaning that it's really only a tax paid by people of moderate wealth and by those who die unexpectedly, without their tax planning in order, and the occasional impecunious aristocrat whose only asset is the decaying country pile, which his heirs are desperately trying to shuffle off on to the National Trust, only to discover that the NT can't afford to maintain it either, and doesn't want it.

Various posters have talked about "unearned" wealth being due to the presence of the rest of society, and are advertising IHT as a means of reclaiming some of that gain for society. If we're talking about people's incomes being dependent on having roads, a legal system, property rights and all the stuff that governments do, then the rather more obvious way of paying for that is with the income tax, rather than with what looks a bit like a long-delayed tax on thrift.

If we're talking about the quite absurd growth in the price of property, the answer isn't to wait until someone dies, then grab half - it's a Land Value Tax.

Basically, the idea is that the value if your house consists of the value of the actual building, landscaping etc. (which is something you did - you bought it, you maintain and upgrade it, and so on) plus the value of the plot of land (which depends on things done by the rest of society, such as the presence of a convenient transport link, pretty scenery, or indeed "respectable" neighbours.

In which light, taxing the value of your land in order to maintain that society which causes its value is easily defensible. It also has the benefit that it's rather difficult to hide an acre or two of England's green and pleasant in an offshore bank account. As a fringe benefit, LVT also provides a feedback mechanism to slow stupid house price increases.

Posted by Arethosemyfeet (# 17047) on :

quote:
Originally posted by orfeo:
Yep. Sweden. Sweden abolished death duties in 2005. High taxing, Scandinavian country decided it could do without the money.

Presumably because it decided to get it from somewhere else or had a surplus. Britain has a deficit and is attempting to cut welfare in ways that is, more or less literally, killing people. If someone has an alternative method of raising the cash that doesn't involve shifting the burden from the rich to the poor, I'm all ears. I suspect, though, that any attempt to do so will meet with waffle about laffer curves and "wealth creators" and other self-serving bullshit from the Daily Hate and their puppets in government.

Posted by orfeo (# 13878) on :

Citation for Justinian is readily available thanks to our current election campaign.

That OECD chart had us around 25, I think. I don't know how long ago it was 30, but not any time recently.

Posted by Touchstone (# 3560) on :

quote:

Originally posted by Marvin the Martian:

quote:
--------------------------------------------------------------------------------
Originally posted by orfeo:
I think you all just enjoy taxing the rich.
--------------------------------------------------------------------------------

Enjoy? It's what they fucking live for. If there weren't any rich people to attack and demonise their lives wouldn't have any purpose. Sad, really.

OK, if you're going to get all ad hominem on my ass...

Do you find it comforting to to think that everyone here but you is motivated by self-interest?

Like Justinian, I'm also likely to be affected by IHT. My father has set up a trust fund to ensure that there is sufficient ready cash available to pay IHT when his estate goes to probate.

He could probably avoid it altogether if he wished but as a (relatively) rich family we can afford to contribute the fairly small proportion of our wealth that our democratically elected (more or less) government considers appropriate.

Posted by Albertus (# 13356) on :

I don't enjoy taxing the rich, or thinking about it: I wish there weren't any (very) rich people to tax. Similarly, I wish there weren't any (very and cripplingly) poor people to have to worry about. I'd like to live in a reasonably equal society, where we all have enough and a little to spare, so that we could all get on with being people.

Posted by Marvin the Martian (# 4360) on :

quote:
Originally posted by Justinian:
If you object to taxation,

I object to excessive or punitive taxation. Yes, we need to pay for services and infrastructure. That doesn't mean we need to punish people for being wealthy by taking as much of their wealth off them as possible.

quote:
You didn't invent the language you use. You didn't invent electricity. You didn't invent the car. You didn't invent the refrigerator.

Nor did the government.

quote:
If you are taxed you are passing on what you have gathered to the following generation. The following generation of humans.

Those of them who will be elected to government, perhaps. The rest of the next generation won't see much of it in their own pockets.

A rich society is one where lots of actual people are rich, not one where the government is rich and all the people are poor.

Posted by Marvin the Martian (# 4360) on :

quote:
Originally posted by Touchstone:
Do you find it comforting to to think that everyone here but you is motivated by self-interest?

Everybody is motivated by self-interest. Myself included. The government included. The politicians who make up the government especially included.

Posted by Albertus (# 13356) on :

Almost nobody is motivated by pure self-interest. We all wrestle with the angel and the serpent inside us. Pretty much everybody is motivated by a mix of self-interest, altruism, and some bits in between. The question is, what are the proportions in the mix?

Posted by Touchstone (# 3560) on :

quote:

Originally posted by Marvin the Martian:

Everybody is motivated by self-interest. Myself included. The government included. The politicians who make up the government especially included.

I completely agree. And a lot of the time, society is well served by people acting rationally in their own interest - at least it makes their behaviour reasonably predictable.

The debate around IHT, though, on this thread to some extent and in my own experience much more, seems to be characterised by an astonishing lack of knowledge of where one's own true interests lie. I repeat (ad nauseam, sorry) that most people will never have to pay or be affected by IHT. But there are IME two strong gut reactions to it:

1) Some people cherish the hope that they might receive an unexpected legacy, maybe from a bachelor great uncle or parents who turn out to have a secret fortune stashed away. And they see this hope of financial security, as illusory as a lottery win, being snatched away from them by a greedy government who will "take most of it away and give it to welfare scroungers". Or, more mundanely, they think that even if their parents don't have to sell the family home to pay for end-of-life care, the value of their 3-bedroom semi in Aberbackofbeyond will be eaten up by IHT when they finally do croak. Many people are completely ignorant of how IHT works - the threshold, the exemption of spouses, the transfer of the allowance to a surviving spouse, the rate at which it is charged. I know someone who was under the impression that the govt would take "about 90%" of an entire estate.

2) "Why should the government take everything I've worked for all my life, I want to leave it to my children" - This often from people who barely trouble the taxman each month with their meagre salaries, who are up to their eyes in debt and whose kids will be lucky to inherit the cost of their funeral. But because of the ignorance cited above, they think that anything they do manage to scrape together will be confiscated by the evil government.

A rational appraisal of IHT will show that most people's self-interest lies in keeping things as they are, and leaving worries about "death duties" and "grave robbing" to those few who are its true target.

Posted by Plique-à-jour (# 17717) on :

It's true, but people want to keep hope. They like to think that one day they might have a chance to get out. No chance. Making it retroactive to seven years before the person's death... it's just social engineering. How is it not?

Posted by Crœsos (# 238) on :

quote:
Originally posted by Plique-à-jour:
Making it retroactive to seven years before the person's death... it's just social engineering. How is it not?

I suspect that section of the law is included as a measure against tax avoidance via deathbed transfers of wealth. Seven years may be excessive, but there is a logic to the provision beyond social engineering.

Posted by Plique-à-jour (# 17717) on :

Tax avoidance by not being dead, in other words. They don't want people to avoid the tax just because it isn't applicable to them. It's ghoulish.

Posted by Leorning Cniht (# 17564) on :

quote:
Originally posted by Arethosemyfeet:
If someone has an alternative method of raising the cash that doesn't involve shifting the burden from the rich to the poor, I'm all ears. I suspect, though, that any attempt to do so will meet with waffle about laffer curves and "wealth creators" and other self-serving bullshit from the Daily Hate and their puppets in government.

Wikipedia has a useful pie chart of UK tax revenue here, and one of UK government spending here. No, they're not from the same year, but things only shift around a little from one year to the next.

We see that IHT raises about 3 billion quid a year - about half a percent of the annual tax take. That's not a vast amount - it's about the same as the tax take from the sale of wine - but it's also not zero.

As I said earlier, I'd scrap it, scrap council tax, probably business rates, and probably stamp duty, and replace the whole thing with a Land Value Tax. I might shift some of the income tax burden on to LVT too - maybe by abolishing NI contributions.

Posted by Crœsos (# 238) on :

quote:
Originally posted by Plique-à-jour:
Tax avoidance by not being dead, in other words. They don't want people to avoid the tax just because it isn't applicable to them. It's ghoulish.

No. The seven year clause is there to prevent, for example, someone claiming that because the estate was signed over to them five minutes prior to death it's not taxable as an inheritance, but as a salary or a gift or some other transfer of funds that's subject to a more favorable tax rate.

Posted by Plique-à-jour (# 17717) on :

But their claim would not be inaccurate, would it? Seven years brings under the marquee people who weren't even ill when they made their gift.

Those people who are so rich that they can offload houses and monies without impeding their standard of living are in the clear, but people who are merely prosperous get the shaft. It sure looks like an attempt to impede social mobility to me.

[ 27. August 2013, 18:19: Message edited by: Plique-à-jour ]

Posted by Crœsos (# 238) on :

quote:
Originally posted by Plique-à-jour:
But their claim would not be inaccurate, would it? Seven years brings under the marquee people who weren't even ill when they made their gift.

That's more or less the point; to insure that the transfer was an actual gift (or whatever), not a hastily arranged tax shelter. You can make the argument that seven years is the wrong place to draw the line, but such a line would have to be drawn somewhere.

quote:
Originally posted by Plique-à-jour:
Those people who are so rich that they can offload houses and monies without impeding their standard of living are in the clear, but people who are merely prosperous get the shaft. It sure looks like an attempt to impede social mobility to me.

In the case of the seven year clause, it's more a case that without it people who die in bed after a moderately lengthy illness are in the clear, but people who die suddenly and unexpectedly get the shaft.

Posted by Plique-à-jour (# 17717) on :

quote:
Originally posted by Crœsos:

quote:
Originally posted by Plique-à-jour:
But their claim would not be inaccurate, would it? Seven years brings under the marquee people who weren't even ill when they made their gift.
That's more or less the point; to insure that the transfer was an actual gift (or whatever), not a hastily arranged tax shelter. You can make the argument that seven years is the wrong place to draw the line, but such a line would have to be drawn somewhere.

But... there's no difference. If the person isn't dead, it isn't for the state to decide that their gift had the wrong motives and is therefore to be treated like a scam. A person arranging things on their deathbed is no less motivated by concern for their loved ones than a person handing everything over while they're in the pink; the difference is that only the seriously rich can afford to do the latter. What retired person can live for seven years minus the better part of their capital and property? Only someone with tons of it.

quote:
Originally posted by Crœsos:

In the case of the seven year clause, it's more a case that without it people who die in bed after a moderately lengthy illness are in the clear, but people who die suddenly and unexpectedly get the shaft.

Without the clause, the people to whom it's applicable would pay the tax, and the people to whom it isn't applicable wouldn't. In 99.9% of cases I am not an anti-tax moaner, and I've spoken against anti-tax moaning, this just seems to me like a targeted and coersive measure.

[ 27. August 2013, 18:41: Message edited by: Plique-à-jour ]

Posted by Crœsos (# 238) on :

quote:
Originally posted by Plique-à-jour:
But... there's no difference. If the person isn't dead, it isn't for the state to decide that their gift had the wrong motives and is therefore to be treated like a scam. A person arranging things on their deathbed is no less motivated by concern for their loved ones than a person handing everything over while they're in the pink; the difference is that only the seriously rich can afford to do the latter. What retired person can live for seven years minus the better part of their capital and property? Only someone with tons of it.

Also known as "the only people who pay the inheritance tax". If you're just scraping by your estate isn't large enough to be subject to the tax.

quote:
Originally posted by Plique-à-jour:

quote:
Originally posted by Crœsos:
In the case of the seven year clause, it's more a case that without it people who die in bed after a moderately lengthy illness are in the clear, but people who die suddenly and unexpectedly get the shaft.
Without the clause, the people to whom it's applicable would pay the tax, and the people to whom it isn't applicable wouldn't. In 99.9% of cases I am not an anti-tax moaner, and I've spoken against anti-tax moaning, this just seems to me like a targeted and coersive measure.

All taxes are targeted and coercive. Taxing income targets those who work for a living. Taxing capital gains targets those whose money works for their living. And if you don't pay your taxes the government has a large number of coercive means at its disposal. Singling out a tax on money changing hands via inheritance as being more targeted or coercive than a tax on money changing hands via salary or dividend or sales or whatever seems to be special pleading.

Posted by Plique-à-jour (# 17717) on :

Targeting a kind of transaction isn't like targeting a gift. Targeting a gift is like targeting an emotion. And again, I don't see how it doesn't favour the rich in practice.

It probably is special pleading, because I do think the circumstances are different. The equivalent would be the proposed 'pasty tax'.

[ 27. August 2013, 19:14: Message edited by: Plique-à-jour ]

Posted by Albertus (# 13356) on :

quote:
Originally posted by Plique-à-jour:
But their claim would not be inaccurate, would it? Seven years brings under the marquee people who weren't even ill when they made their gift.

Those people who are so rich that they can offload houses and monies without impeding their standard of living are in the clear, but people who are merely prosperous get the shaft...

Hang in a minute: we've been here before, haven't we? Even if strictly speaking the testator pays the tax, it's only on what is left after they are dead. So whether you're merely prosperous or unbelievably rich, IHT won't affect your standard of living, will it? Spend what you want, or need, to, and if your heirs only get 60% of what's left above £350K or whatever it is (and BTW most people I know would think that even say a third share in £350K was a pretty good windfall, which is what a legacy is) that's their look-out.

[ 27. August 2013, 19:20: Message edited by: Albertus ]

Posted by Crœsos (# 238) on :

quote:
Originally posted by Plique-à-jour:
Targeting a kind of transaction isn't like targeting a gift. Targeting a gift is like targeting an emotion.

Except that from a financial perspective a "gift" in indistinguishable from any other transaction. To take a real world example, creationist Kent Hovind made the argument that his organization had no employees receiving salaries, just "volunteers" who were occasionally given "gifts" of cash. As such Hovind was not responsible for income tax withholding or paying the employer's portion of the social security tax. This argument worked about as well as you'd think it would.

quote:
Originally posted by Plique-à-jour:
And again, I don't see how it doesn't favour the rich in practice.

Because it's a tax that the non-rich will never pay. Unless you consider it a special favor to have a tax directed at you.

Posted by Plique-à-jour (# 17717) on :

Oh I remember the Hovind thing, and I've joked myself about the CofE's pulling this kind of stuff. I am not anti-tax, I just think this, particularly the seven year thing, is odious. The CofE's claims of not being an employer are cynical, I don't think the behaviour this is aimed at is.

The poor will never pay it, but I wouldn't not everyone in a position to be hit by it is going to be rich per se. And the really rich, it won't hurt at all, just the upwardly mobile. I have no expectation whatsoever of being left a big house or a wad of money suddenly, but I don't resent other people's good fortune either. It's just sad to think of someone's last efforts for their loved ones being wasted.

Posted by Albertus (# 13356) on :

But hang on. Let's get this in proportion. This is NOT about the big bad state coming along and snaffling everything. As we've said, first of all anything under £325000 isn't taxed (just looked it up). Then anything over that gets taxed at 40%. So if you leave £500,000, your heirs get, after tax, £430,000 (your bequest is reduced by 14%); if you leave £1 million, your heirs get £730,000 (your bequest is reduced by 27%); if you leave £2,000,000, your heirs get £1,330,000 (your bequest is reduced by 33.5%)- and so on. So IHT may be a bit clunky and inferior to proper wealth or land value taxes, but it's relatively progressive and for most of the minority of people who have to pay it, comparatively unburdensome.

Posted by Crœsos (# 238) on :

quote:
Originally posted by Albertus:
But hang on. Let's get this in proportion. This is NOT about the big bad state coming along and snaffling everything. As we've said, first of all anything under £325000 isn't taxed (just looked it up). Then anything over that gets taxed at 40%. So if you leave £500,000, your heirs get, after tax, £430,000 (your bequest is reduced by 14%); if you leave £1 million, your heirs get £730,000 (your bequest is reduced by 27%); if you leave £2,000,000, your heirs get £1,330,000 (your bequest is reduced by 33.5%)- and so on.

Well, the exemption is only £325,000 for the estate of an unmarried person. The estate of a couple that's married (or civilly unionized) has an exemption of £650,000. (That's about US$1,000,000 for American shipmates.) It should also be noted that you're allowed to pay the tax on the portion of the estate that can't be easily divided to pay taxes (e.g. a house) in installments over ten years.

Posted by tclune (# 7959) on :

quote:
Originally posted by Plique-à-jour:
It's just sad to think of someone's last efforts for their loved ones being wasted.

I don't personally know anyone who has been socking away money and property into an estate for their children. I know a lot of people who transfer their house into their children's name so they can dodge paying for their own medical care if they need long-term care (and the folks I know who do this vociferously oppose making such care an entitlement for folks who can't hire lawyers to game the system for them.)

In truth, the people I know who work to avoid paying taxes like this do it because they hate to pay taxes, not because they love their kids. And I'm far from convinced that leaving a huge wad of money to your heirs is in the interest of the heirs. I am much more familiar with heirs falling out over some fool piece of jewelry than I am of their feeling the love from beyond the grave. As always, YMMV.

--Tom Clune

Posted by Crœsos (# 238) on :

quote:
Originally posted by tclune:
And I'm far from convinced that leaving a huge wad of money to your heirs is in the interest of the heirs. I am much more familiar with heirs falling out over some fool piece of jewelry than I am of their feeling the love from beyond the grave. As always, YMMV.

America's founding fathers were very much in favor of inheritance taxes generally. They saw them as an impediment to the development of an hereditary aristocracy based on inherited money and privilege rather than individual merit and achievement. Of course it could be argued that the British system is mostly about inherited money and privilege.

Posted by Gee D (# 13815) on :

Lets assume your L325K is roughly equivalent to $Aus650K. Here, that will get you a house, but one which would be under average in Sydney and Melbourne. So your tax kicks in on a very modest estate, not the estate of a rich person at all. I can't now remember the details of death duties here*, but they started rather higher than that, with a higher commencement if the estate was passing to a surviving spouse.

* I started in practice in the late 60s as an articled clerk, and used attend with documents at the Stamp Duties Office for duty to be paid, but don't now have the time to chase up the rates for the long-abolished tax.

Posted by Crœsos (# 238) on :

quote:
Originally posted by Gee D:
Lets assume your L325K is roughly equivalent to $Aus650K. Here, that will get you a house, but one which would be under average in Sydney and Melbourne. So your tax kicks in on a very modest estate, not the estate of a rich person at all.

That's the exemption for the estate of an unmarried person. In the UK an estate formerly owned by a married or civilly unionized couple has double the exemption, or £650,000 (or a little over 1.1 million Australian dollars at the current exchange rate). Now a million (or half a million) Australian dollars can be called a lot of things, but I'm not sure "modest" covers it.

quote:
Originally posted by Gee D:
I can't now remember the details of death duties here*, but they started rather higher than that, with a higher commencement if the estate was passing to a surviving spouse.

Interesting. Most jurisdictions, including the UK, don't consider inheritance by a spouse to be taxable at all. I think the principle is that property is owned jointly within a marriage, so it isn't really changing hands upon the death of one of the parties.

Posted by orfeo (# 13878) on :

quote:
Originally posted by Crœsos:
Now a million (or half a million) Australian dollars can be called a lot of things, but I'm not sure "modest" covers it.

Trust me when I say that GeeD knows the Sydney real estate market a hell of a lot better than you do!

As for half a million... remember I said I lived in a cheap house? I do. I live in a suburb that is supposed to be one of the more disadvantaged suburbs in Canberra. Admittedly Canberra as a whole is probably relatively wealthy, but the point is that I live in a cheap place (and Canberra as a whole is not as expensive as many parts of Sydney).

I don't know exactly how much my house is worth now, but I strongly suspect it is over 400 thousand. The house next door is literally a mirror image of mine and it sold for 410 thousand a couple of years ago.

That's what very modest houses sell for around here.

[ 28. August 2013, 02:25: Message edited by: orfeo ]

Posted by Gee D (# 13815) on :

Croesos a very quick search shoes that the Sydney median house price is around $650K. The same site noted that " Sydney is still the most expensive city in Australia, with both the highest median house and apartment price, and also boasts 66% of suburbs with a median price in excess of $1 million". This suggests that the majority of homes below the $650K mark are not that far below it. I can't in my quick lunch adjournment find that sort of detail. These are not the homes of wealthy people.

My recollection from standing in the queue at the Stamp duties Office in the late 60s is of paying duty on property passing to a surviving spouse. Abolition occurred first in Western Australia in the early 70s from memory and the other states quickly followed.

[ 28. August 2013, 03:28: Message edited by: Gee D ]

Posted by Crœsos (# 238) on :

quote:
Originally posted by orfeo:

quote:
Originally posted by Crœsos:
Now a million (or half a million) Australian dollars can be called a lot of things, but I'm not sure "modest" covers it.
Trust me when I say that GeeD knows the Sydney real estate market a hell of a lot better than you do!

As for half a million... remember I said I lived in a cheap house? I do. I live in a suburb that is supposed to be one of the more disadvantaged suburbs in Canberra. Admittedly Canberra as a whole is probably relatively wealthy, but the point is that I live in a cheap place (and Canberra as a whole is not as expensive as many parts of Sydney).

I don't know exactly how much my house is worth now, but I strongly suspect it is over 400 thousand. The house next door is literally a mirror image of mine and it sold for 410 thousand a couple of years ago.

That's what very modest houses sell for around here.

Admittedly I know nothing about the Sydney real estate market other than what can be produced via a Google search, but according to this article at the top of the Google queue the median house price in Sydney is AU$640,000 (~£370,000). Since that's a median value half the houses in Sydney are worth less than this. If the (UK) exemption for an unmarried (UK) individual is applied an estate consisting of nothing except a median-value house in Sydney and only enough cash to pay off any outstanding debts, the effective (UK) tax rate would be less than 5%. A similar estate for a married (UK) couple would be tax free. This does not seem overly burdensome.

Posted by Gee D (# 13815) on :

I took my figure from a rather hard to read graph. The other figure is more relevant as it shows that the bottom of the range would be quite close to the median. $1m would not buy a luxury house at all, not a house of a wealthy person. More likely, it would be the house of a couple in their late 30s/early 40s, with 2 or 3 young children; both parents working.

Posted by la vie en rouge (# 10688) on :

In most parts of the UK (not London) £650 000 will buy a very, very nice house (round my parents' way, you can get a detached four bedroom home for £300 000).

What you're also forgetting is that those on truly modest incomes often never get to buy a home at all - they have to rent.

Posted by Gee D (# 13815) on :

The rental market, both public and private, is much smaller here than in the UK, and has been for a long time.

Posted by Marvin the Martian (# 4360) on :

quote:
Originally posted by Crœsos:
That's the exemption for the estate of an unmarried person. In the UK an estate formerly owned by a married or civilly unionized couple has double the exemption, or £650,000

This raises another potential issue - with the dramatic rise in single-parent households, will IHT end up discriminating against them by alowing married couples to leave more to their children than single parents?

The house is worth exactly the same either way, but because your dad (or mom) was a deadbeat who buggered off when you were a child - or even because your parents divorced at some point - you don't get to keep as much of it once your remaining parent dies. Fair?

Posted by aumbry (# 436) on :

quote:
Originally posted by Mere Nick:
While it appears UK tax law limits the amount that can be gifted tax free, maybe it would help out if you started gifting a small part of the ownership of the house each year to each of your heirs. It could also help reduce the value for inheritance tax purposes since having many owners could reduce the value of your portion, especially if the time comes to where you own a minority interest.

When I look online at what the queen owns, it just says the royal family. Maybe they are doing that very thing I have described.

You should go see a pro about that.

If a person gifts an asset which they continue to enjoy then it is classed a "gift with reservation" and does not work for inheritance tax. Giving away portions of your house whilst continuing to live there would fall into this category unless you were willing to pay a full market rent on their share to the new joint owners although they would suffer income tax on the rent paid to them.

Posted by Marvin the Martian (# 4360) on :

quote:
Originally posted by tclune:
And I'm far from convinced that leaving a huge wad of money to your heirs is in the interest of the heirs.

I'm trying to work out a way in which inheriting a few million quid wouldn't be in my best interests (other than the obvious "one of my relatives would have died" part).

And don't give me any of that "dignity of work" crap. There's no dignity in spending the best years of my life shackled to a desk rather than being out there doing the things I want to do. The amount of times I look out that window and wish I had a rich uncle who could leave me enough money to spend the rest of my life on the other side of the glass......

Posted by Jane R (# 331) on :

[in reply to Marvin, who complained about The Injustice To Single-Parent Families...]

But each child has two parents and the allowance for couples is exactly twice what it is for a single person. So whether or not your parents are still together, their estates will be eligible for a total of £650,000 exemption from the inheritance tax.

Of course if they DO get divorced they are likely to end up with less money overall; divorce is an expensive business. I doubt they'd be willing to stay together For The Sake Of The Children's Inheritance, though... my Other Half's parents used to send us postcards from their exotic holidays telling us how much fun they were having spending his inheritance (and why shouldn't they spend it - they worked for it!)

I think the real problem in the UK is the stupidly inflated house prices. Inheritance tax was only originally meant to affect the super-rich, but nowadays quite a lot of people own houses that are worth £300,000+ (even outside London and the South-East) and are therefore liable for IHT, despite not thinking of themselves as rich. There aren't so many people with £300K in savings.

[ 28. August 2013, 09:31: Message edited by: Jane R ]

Posted by Marvin the Martian (# 4360) on :

quote:
Originally posted by Jane R:
But each child has two parents and the allowance for couples is exactly twice what it is for a single person. So whether or not your parents are still together, their estates will be eligible for a total of £650,000 exemption from the inheritance tax.

Not every child has two married parents. Very many do not, indeed very many have never had two parents other than at the moment of conception.

Posted by Jane R (# 331) on :

Way to miss the point, Marvin.

A single person gets an exemption of £325K.

A couple gets an exemption of £650K (2x£325K).

If you are the only heir then you scoop the pool whether or not your parents were actually married to each other at the time of their deaths. If you're not then you can treat us all to an edifying display of sibling rivalry as you duke it out with your brothers and sisters to decide who gets what. Either way, the first £325K of each estate is not liable for inheritance tax.

If one parent has a much smaller estate that is not liable for IHT at all, then yes, some of that (total) £650K exemption is effectively wasted. But getting divorced was in their best interests, not yours. I am surprised (but nevertheless gratified) to discover that you think there are circumstances where you believe someone else's interests should trump your own... presumably this means you would never consider divorce, in order to protect your children's inheritance?

I don't think there's much you can do about the deadbeat dad/mum who absconds as soon as possible after conception/birth; the CSA couldn't even get child support payments out of them. I suppose if they're dead they can't run away while you try to extract money from the estate.

I daresay a lawyer will be along in a minute to clarify this, but surely the cases where the £650K couples exemption comes into play are fairly rare? Presumably their estates would only qualify for the joint exemption if they died at the same time...

[ 28. August 2013, 09:57: Message edited by: Jane R ]

Posted by Marvin the Martian (# 4360) on :

quote:
Originally posted by Jane R:
Way to miss the point, Marvin.

Actually, I think it is you who has misunderstood. I'm referring to single-parent households with assets equivalent to those with two parents. The actual value of the estate is exactly the same, but because it happens to have come from only one parent the beneficiary/ies will get slammed for more tax.

Posted by Marvin the Martian (# 4360) on :

quote:
Originally posted by Jane R:
I daresay a lawyer will be along in a minute to clarify this, but surely the cases where the £650K couples exemption comes into play are fairly rare? Presumably their estates would only qualify for the joint exemption if they died at the same time...

Firly common, I'd have thought. Married people can leave all their assets to their spouse with no IHT whatsoever, and their allowance is then carried over to when the second spouse dies. So the beneficiaries of any married couple with assets over £650,000 will get the full £650,000 tax-free allowance regardless of how long there is in between the deaths of the couple in question.

None of which applies to unmarried couples. The beneficiaries of an unmarried couple with exactly the same assets as above will end up with a significantly smaller net inheritance when the second partner dies.

In the modern world where marriage is no longer the norm, is that fair?

Posted by Albertus (# 13356) on :

Of course it is. You should have a choice: if you want your relationship to be legally recognised, you get married/ civil partnered: if you don't, you don't.

Posted by orfeo (# 13878) on :

quote:
Originally posted by Albertus:
Of course it is. You should have a choice: if you want your relationship to be legally recognised, you get married/ civil partnered: if you don't, you don't.

And you expect a lot of folks in their 20s, or younger, who have children outside of marriage to be thinking about the implications for inheritance tax in 50+ years time when making that decision??

Posted by Marvin the Martian (# 4360) on :

I was thinking of fairness to the beneficiaries, not to the couple themselves.

Posted by Jane R (# 331) on :

Marvin:

quote:
Actually, I think it is you who has misunderstood. I'm referring to single-parent households with assets equivalent to those with two parents. The actual value of the estate is exactly the same, but because it happens to have come from only one parent the beneficiary/ies will get slammed for more tax.

Oh, I see where you're coming from now (and thanks for clarifying when IHT is applied) but I still don't understand why you think it is unfair that [the heirs of] a single person with an estate twice the size of a couple should have to pay more IHT. None of my family was ever rich enough to qualify for it until the housing boom and thanks to the eldercare crisis, probably none of us ever will be (just as well we have those vastly overpriced houses to sell to fund our care homes, though).

You obviously move in different circles anyway - I don't know any single people who have accumulated that much, at least not well enough to play a starring role in their wills.

Posted by Jane R (# 331) on :

Marvin:

quote:
I was thinking of fairness to the beneficiaries, not to the couple themselves.

... but it is quite amusing to see you arguing for altruism for a change [Two face]

Posted by Marvin the Martian (# 4360) on :

quote:
Originally posted by Jane R:
... but it is quite amusing to see you arguing for altruism for a change

I've always argued in favour of policies that let people keep their money in their own pockets, rather than having the government take it away.

Posted by Crœsos (# 238) on :

quote:
Originally posted by Marvin the Martian:

quote:
Originally posted by Jane R:
... but it is quite amusing to see you arguing for altruism for a change
I've always argued in favour of policies that let people keep their money in their own pockets, rather than having the government take it away.

Which is why I'm fairly certain that if there were no doubling of the exemption for married (and civilly unionized) couples you'd be complaining about the 'marriage penalty' that allows a couple to double the tax exemption on their estate by getting divorced. The specifics of your objections don't matter so much as whether or not they can be used to argue against any form of taxation.

Of course, in the most technical sense it's not the inheritance tax that's preventing people from "keep[ing] their money in their own pockets", it's the fact that they're dead.

Posted by Crœsos (# 238) on :

quote:
Originally posted by Gee D:
My recollection from standing in the queue at the Stamp duties Office in the late 60s is of paying duty on property passing to a surviving spouse.

All I can say is that inheritance by a spouse is tax-exempt in most countries with an inheritance tax that I'm familiar with. This was, in fact, the key point in United States v. Windsor [PDF], the recent U.S. Supreme Court cast that ruled Section 3 of the Defense of Marriage Act (DOMA) unconstitutional. Edith Windsor was legally married by the state of New York to Thea Speyer but was still required to pay inheritance tax by the federal government since DOMA prevented the federal government from recognizing the marriage as valid. If Thea had been Theo the entire estate would have been transferred tax free. In other words, it was a case where someone could demonstrate a quantifiable harm being done by DOMA's unequal treatment of same-sex and opposite-sex marriages.

Posted by Marvin the Martian (# 4360) on :

quote:
Originally posted by Crœsos:
Of course, in the most technical sense it's not the inheritance tax that's preventing people from "keep[ing] their money in their own pockets", it's the fact that they're dead.

Heh, true that. Especially if you forget that I'm contrasting "people" (as in "THE people") with "government" when I say that. I could have made it clearer by saying "policies that let thepeople keep their money in their own pockets, rather than having the government take it away".

Inheritance is money moving from people to people, which means the people are still keeping it themselves.

Posted by Albertus (# 13356) on :

quote:
Originally posted by orfeo:

quote:
Originally posted by Albertus:
Of course it is. You should have a choice: if you want your relationship to be legally recognised, you get married/ civil partnered: if you don't, you don't.
And you expect a lot of folks in their 20s, or younger, who have children outside of marriage to be thinking about the implications for inheritance tax in 50+ years time when making that decision??

I woould hope that anybody who is having children would think about the possible legal consequences that might arise in a whole range of circumstances, including their death.

Posted by aumbry (# 436) on :

quote:
Originally posted by Marvin the Martian:

quote:
Originally posted by tclune:
And I'm far from convinced that leaving a huge wad of money to your heirs is in the interest of the heirs.
I'm trying to work out a way in which inheriting a few million quid wouldn't be in my best interests (other than the obvious "one of my relatives would have died" part).

And don't give me any of that "dignity of work" crap. There's no dignity in spending the best years of my life shackled to a desk rather than being out there doing the things I want to do. The amount of times I look out that window and wish I had a rich uncle who could leave me enough money to spend the rest of my life on the other side of the glass......

Whether it would be bad for you or not it would almost certainly be bad for society if in a mature economy wealth passed untaxed from one generation to another. Instead of protecting private property it would merely see it gradually concentrated in the hands of small class of super-rich rentiers. The situation would probably be like modern day Saudi Arabia or France prior to the Revolution.

Posted by Crœsos (# 238) on :

quote:
Originally posted by Marvin the Martian:

quote:
Originally posted by Crœsos:
Of course, in the most technical sense it's not the inheritance tax that's preventing people from "keep[ing] their money in their own pockets", it's the fact that they're dead.
Heh, true that. Especially if you forget that I'm contrasting "people" (as in "THE people") with "government" when I say that. I could have made it clearer by saying "policies that let the people keep their money in their own pockets, rather than having the government take it away".

Inheritance is money moving from people to people, which means the people are still keeping it themselves.

If you're arguing at that level of abstraction then the government isn't taking away any money from the people since all money collected (and sometimes more) is quickly spent and ends up back in the hands of "the people". That might be a reasonable claim if governments were routinely amassing stockpiles of cash, but most Western governments actually run deficits.

And, of course, this ignores the claims by democratic governments that the the government is the people.

Posted by Marvin the Martian (# 4360) on :

quote:
Originally posted by Crœsos:
If you're arguing at that level of abstraction then the government isn't taking away any money from the people since all money collected (and sometimes more) is quickly spent and ends up back in the hands of "the people".

By the same logic burglary would be perfectly OK, but you wouldn't expect me to make that claim, would you?

There's a bit more to it. Individual people - all individual people - should be as free as possible to spend (or save) their money as they see fit and according to their own priorities. It shouldn't be decided for them by government.

quote:
And, of course, this ignores the claims by democratic governments that the the government is the people.

I'd laugh, only that claim isn't even funny any more. The government is the people? Which people? Every single government we've had since I was born has seen at least one - often more - major public protest against its policies. If the government is the people, then how can that happen?

Democratic government is a sham - a self-perpetuating political elite that occasionally gets us to put marks on pieces of paper as if that shit actually makes a difference to our lives. All we people ever get to do is change the colour of the ties on the interchangeable dickheads who shit all over us. Recessions and upturns happen regardless of the tie colour. They all have the same policies. They all have the same lucrative jobs waiting for them in the City (or the House of Lords) once they've spent long enough raiding the expenses pot (our tax money at work!). None of them give a shit about you, me, or anyone else in this whole damn country.

The government is the people. What a crock of shit.

Posted by Albertus (# 13356) on :

Marvin

quote:
Individual people - all individual people - should be as free as possible to spend (or save) their money as they see fit and according to their own priorities. It shouldn't be decided for them by government.

Which might mean, in fact, that you don't think that there should be a government, because any government, even of the most minimally nighwatchman kind, needs to take some money from individuals and to spend it on their behalf but not in ways that each of them would necessarily choose.
Is that your position? Or do the words 'as possible' mean that you're not actually an anarchist? If so, you then get into questions about what that 'as possible' means (negative and positive conceptions of liberty and so on) and about who decides the bounds of possibility.

As for your rant against government and politicians, what is your evidence for the claims that you make?

Posted by Crœsos (# 238) on :

quote:
Originally posted by Marvin the Martian:

quote:
Originally posted by Crœsos:
If you're arguing at that level of abstraction then the government isn't taking away any money from the people since all money collected (and sometimes more) is quickly spent and ends up back in the hands of "the people".
By the same logic burglary would be perfectly OK, but you wouldn't expect me to make that claim, would you?

Why wouldn't I expect you to make that claim? It is consistent with your argument that just moving assets around within "the people" is better than taxation. Especially since burgled goods will probably enter the tax-free black market economy whereas unburgled goods will likely be taxed at some point.

quote:
Originally posted by Marvin the Martian:
There's a bit more to it. Individual people - all individual people - should be as free as possible to spend (or save) their money as they see fit and according to their own priorities. It shouldn't be decided for them by government.

Which brings us back to the fact that the dead don't have "priorities" and usually aren't considered "people" in the legal sense of the term.

And can you make up your mind about whether you're discussing "individual people" or "the people" generically? You seem to switch back and forth between definitions for the sake of rhetorical convenience.

Posted by agingjb (# 16555) on :

I've never seen why gifts and legacies are not simply taxed as income. Why eparate taxes applied to the donor rather than the recipient?

Then again politicians would far rather tax generosity than greed.

Posted by Jane R (# 331) on :

Marvin:

quote:
I've always argued in favour of policies that let people keep their money in their own pockets...

...but it's not. The person who had the money is dead. The inheritance tax is paid by their estate before the heirs get their share.

If you want to be traditional you could work out the equivalent value in cows or sheep and turn up at the tax office with that... but I daresay HMRC would think of something equally wacky to do to you in return.

I'd rather my parents spent their excess cash on living comfortably and happily in their old age. That way they get to benefit from the money they earned.

If their joint estate is worth more than £650,000 when they both die (unlikely, given that they will probably have to pay for a nursing home at some point) then I am quite happy for the extra to be taxed in order to pay for care for other pensioners who have not been so lucky. It is not money I have earned myself; it won't be enough to enable me to retire to Barbados (I have to share with my sisters, and it won't be that much to start with); I'd be a fool to count on it and arrange my budget around it.

Have you considered buying a lottery ticket? Now there's a windfall that wouldn't be taxed. It's a fourteen million to one chance, but it might just work...

Posted by Marvin the Martian (# 4360) on :

quote:
Originally posted by Albertus:
Which might mean, in fact, that you don't think that there should be a government, because any government, even of the most minimally nighwatchman kind, needs to take some money from individuals and to spend it on their behalf but not in ways that each of them would necessarily choose.
Is that your position? Or do the words 'as possible' mean that you're not actually an anarchist? If so, you then get into questions about what that 'as possible' means (negative and positive conceptions of liberty and so on) and about who decides the bounds of possibility.

I identify as libertarian these days, but not anarchist. We need some form of government to protect against lawlessness and the like.

quote:
As for your rant against government and politicians, what is your evidence for the claims that you make?

Find me someone who doesn't think the three parties with any chance of forming a government are essentially the same. Labour have already pledged to keep exactly the same economic policies as the Conservatives if they win the next election. I hardly need to defend my comments on expenses, though I will add the generous pay rises that MPs always seem to get every year.

Posted by Marvin the Martian (# 4360) on :

quote:
Originally posted by Crœsos:
Which brings us back to the fact that the dead don't have "priorities" and usually aren't considered "people" in the legal sense of the term.

That's what a will is for - it outlines what the person wants to do with their assets once they're dead.

quote:
And can you make up your mind about whether you're discussing "individual people" or "the people" generically? You seem to switch back and forth between definitions for the sake of rhetorical convenience.

It's both. "The people" as a group is made up of individual people. It's essentially a shorthand for "each individual person".

Posted by Gee D (# 13815) on :

quote:
Originally posted by agingjb:
I've never seen why gifts and legacies are not simply taxed as income. Why eparate taxes applied to the donor rather than the recipient?

Then again politicians would far rather tax generosity than greed.

Because gifts/legacies as such are not income by any of the generally accepted definitions.

Posted by Crœsos (# 238) on :

quote:
Originally posted by Marvin the Martian:

quote:
Originally posted by Crœsos:
Which brings us back to the fact that the dead don't have "priorities" and usually aren't considered "people" in the legal sense of the term.
That's what a will is for - it outlines what the person wants to do with their assets once they're dead.

Doesn't the very idea of a will imply the existence of both a body of law and some kind of enforcement mechanism? In other words, a government? I've always suspected that "libertarian" was shorthand for "I want the benefits of having a government, but I don't want to pay for it".

quote:
Originally posted by Marvin the Martian:

quote:
And can you make up your mind about whether you're discussing "individual people" or "the people" generically? You seem to switch back and forth between definitions for the sake of rhetorical convenience.
It's both. "The people" as a group is made up of individual people. It's essentially a shorthand for "each individual person".

If you say so. Let's see how that works in your original statement.

quote:
Originally posted by Marvin the Martian:
I've always argued in favour of policies that let [each individual person] keep their money in their own pockets, rather than having the government take it away.

Which brings us right back to the point that "each individual person" can't "keep their money in their own pockets" after death, unless you're advocating for some kind of pharaonic burial system where "each individual person" is buried with all their worldly possessions. Or maybe some kind of Viking-style rite where the deceased are set adrift in their burning condos. [Big Grin]

Posted by Marvin the Martian (# 4360) on :

quote:
Originally posted by Crœsos:
Which brings us right back to the point that "each individual person" can't "keep their money in their own pockets" after death, unless you're advocating for some kind of pharaonic burial system where "each individual person" is buried with all their worldly possessions. Or maybe some kind of Viking-style rite where the deceased are set adrift in their burning condos.

Yes, you're right that the dead can't take their assets with them. The basic issue, then, concerns who should be assumed to be the owner of those assets after the original owner's death. It seems obvious to me that the answer should be the deceased person's partner/spouse, or if they had no partner for whatever reason (including their partner already being dead) it should be their descendents (In the absence of any direct descendents, the nearest living family member should be the one who takes ownership of the assets). All of which can, of course, be pre-emptively overridden by the original owner if they choose to write a will leaving all or part of their assets to a third party.

The assets, therefore, are always in someone's "pockets".

Posted by Albertus (# 13356) on :

Just out of interest, Marvin, what are your preferred (= least unpreferred) forms of taxation, given that you do believe in some kind of state, which has to get money from somewhere? (Not trying to set a trap- just curious to know.)

Posted by Marvin the Martian (# 4360) on :

I'd love to see more of the tax burden fall on companies (which aren't people). But in relative terms I don't mind the idea of income tax.

Posted by Arethosemyfeet (# 17047) on :

I'd agree with you Marvin, but I can't see a good reason why inheritance shouldn't be considered a form of income.

Posted by Marvin the Martian (# 4360) on :

Pretty much for the same reason Christmas presents aren't seen as income.

Posted by Gee D (# 13815) on :

quote:
Originally posted by Arethosemyfeet:
I'd agree with you Marvin, but I can't see a good reason why inheritance shouldn't be considered a form of income.

An inheritance is clearly not income. Each is a on-off event, and almost always there is no legal obligation upon the testator to make the bequest. It fails these 2 basic tests on income and passes none of the others as well.

[ 29. August 2013, 21:58: Message edited by: Gee D ]

Posted by Crœsos (# 238) on :

quote:
Originally posted by Gee D:
An inheritance is clearly not income. Each is a on-off event, and almost always there is no legal obligation upon the testator to make the bequest. It fails these 2 basic tests on income and none of the others either.

So an executive's bonus check isn't "income" either, by that reasoning.

Posted by Gee D (# 13815) on :

quote:
Originally posted by Arethosemyfeet:
I'd agree with you Marvin, but I can't see a good reason why inheritance shouldn't be considered a form of income.

I apologise if my last post was a bit abrupt. For a very full discussion of what constitutes a gift (non-taxable) and what income (taxable) read the decision of Windeyer J in:

Scott v Federal Commissioner of Taxation [1966] HCA 48; (1966) 117 CLR 514

Mr Scott was a solicitor, regularly acting for a client in real estate development and other transactions. He charged her what was the then scale fee for the work (scale fees for conveyancing have long since been abolished) which the client paid without demur, but one one occasion, the client said she was making him a gift of 10K pounds - a substantial sum in the early 60s. Windeyer J discussed the issues clearly and found that while the payment of the scale fees was income, as Mr Scott accepted, the additional 10K was not and therefore not taxable.

Posted by cliffdweller (# 13338) on :

quote:
Originally posted by Gee D:

quote:
Originally posted by Arethosemyfeet:
I'd agree with you Marvin, but I can't see a good reason why inheritance shouldn't be considered a form of income.
I apologise if my last post was a bit abrupt. For a very full discussion of what constitutes a gift (non-taxable) and what income (taxable) read the decision of Windeyer J in:

Scott v Federal Commissioner of Taxation [1966] HCA 48; (1966) 117 CLR 514

Mr Scott was a solicitor, regularly acting for a client in real estate development and other transactions. He charged her what was the then scale fee for the work (scale fees for conveyancing have long since been abolished) which the client paid without demur, but one one occasion, the client said she was making him a gift of 10K pounds - a substantial sum in the early 60s. Windeyer J discussed the issues clearly and found that while the payment of the scale fees was income, as Mr Scott accepted, the additional 10K was not and therefore not taxable.

I don't really read the discussion here or the prior question as a descriptive one but rather a prescriptive one. We're not really debating what is or is not legally permissible but what we believe is fair or just. For all its many benefits, the Ship probably isn't the best place to come for legal advice/estate planning.

Posted by Sir Kevin (# 3492) on :

That is evil! Here in California, we just spit the inheritance three ways when our mother died: it was transparent! No taxes.

Posted by Jane R (# 331) on :

Marvin:

quote:
I'd love to see more of the tax burden fall on companies (which aren't people).

You do understand that if this happens, the companies will pass on the extra costs to their customers, don't you?

Posted by Marvin the Martian (# 4360) on :

quote:
Originally posted by Crœsos:

quote:
Originally posted by Gee D:
An inheritance is clearly not income. Each is a on-off event, and almost always there is no legal obligation upon the testator to make the bequest. It fails these 2 basic tests on income and none of the others either.
So an executive's bonus check isn't "income" either, by that reasoning.

An executive's bonus is annual (so not "one-off") and written into his/her contract (so putting a legal obligation on the company to give it). It passes both tests.

Posted by Marvin the Martian (# 4360) on :

quote:
Originally posted by Jane R:
Marvin:
quote:
I'd love to see more of the tax burden fall on companies (which aren't people).
You do understand that if this happens, the companies will pass on the extra costs to their customers, don't you?

Probably. But we have a choice of whether to buy from companies or not - and which companies to buy from - that allows us to manage our purchases in order to spend as much or as little as we choose. The taxman doesn't give us that choice.

Posted by la vie en rouge (# 10688) on :

Heavy taxation of companies has knock-on effects. In France, companies are very highly taxed, the consequence being to make them very reluctant to hire staff. There's no such thing as a tax that no one has to pay for.

Posted by QLib (# 43) on :

I think it would be quite interesting to say to big companies that don't pay tax in the UK - 'OK, but I'm afraid people who work for you will no longer be able to claim Tax Credits - the UK taxpayer is no longer going to subsidise your low pay - we're going to pass a law that obliges you to make up the difference by paying them extra'. Probably unworkable. I'm sure someone will be along here shortly to tell me why.

Posted by Karl: Liberal Backslider (# 76) on :

quote:
Originally posted by QLib:
I think it would be quite interesting to say to big companies that don't pay tax in the UK - 'OK, but I'm afraid people who work for you will no longer be able to claim Tax Credits - the UK taxpayer is no longer going to subsidise your low pay - we're going to pass a law that obliges you to make up the difference by paying them extra'. Probably unworkable. I'm sure someone will be along here shortly to tell me why.

Oh, it's workable. They'd just drop everyone's base pay so that their base pay + the extra you're making them pay is equal to the pay they had before. Which means the employees, now unable to claim tax credits, get the shaft.

Posted by QLib (# 43) on :

But how many of them are already paying the minimum wage, or close to it?

Posted by orfeo (# 13878) on :

quote:
Originally posted by QLib:
I think it would be quite interesting to say to big companies that don't pay tax in the UK - 'OK, but I'm afraid people who work for you will no longer be able to claim Tax Credits - the UK taxpayer is no longer going to subsidise your low pay - we're going to pass a law that obliges you to make up the difference by paying them extra'. Probably unworkable. I'm sure someone will be along here shortly to tell me why.

Wait... you have employees claiming tax credits?? Simply by virtue of being employees??

If I'm understanding you correctly, this is another one of those times when a suggestion that something is unworkable is easily countered by pointing out that there are parts of the world where it does work. This is the first time in my life I've heard this tax credits idea in relation to employment.

We do have tax credits in other areas - taxation on shares is the one that springs to mind. The tax on my piddly little shareholding (which I never even bought, it got handed to me, hence it's piddliness) is reduced based on the amount of tax already paid by the company.

Posted by Crœsos (# 238) on :

quote:
Originally posted by orfeo:

quote:
Originally posted by QLib:
I think it would be quite interesting to say to big companies that don't pay tax in the UK - 'OK, but I'm afraid people who work for you will no longer be able to claim Tax Credits - the UK taxpayer is no longer going to subsidise your low pay - we're going to pass a law that obliges you to make up the difference by paying them extra'. Probably unworkable. I'm sure someone will be along here shortly to tell me why.
Wait... you have employees claiming tax credits?? Simply by virtue of being employees??

If I'm understanding you correctly, this is another one of those times when a suggestion that something is unworkable is easily countered by pointing out that there are parts of the world where it does work. This is the first time in my life I've heard this tax credits idea in relation to employment.

The U.S. has something similar with the Earned Income Tax Credit, which is essentially a refundable tax credit available to low income workers.

Posted by Leorning Cniht (# 17564) on :

quote:
Originally posted by QLib:
I think it would be quite interesting to say to big companies that don't pay tax in the UK - 'OK, but I'm afraid people who work for you will no longer be able to claim Tax Credits - the UK taxpayer is no longer going to subsidise your low pay - we're going to pass a law that obliges you to make up the difference by paying them extra'. Probably unworkable. I'm sure someone will be along here shortly to tell me why.

Well, the amount of tax credit depends on your circumstances. There's a small component for just working, but a much larger component for having children (and isn't the childcare credit rolled in to there somewhere?). I think there might be justifiable anger with a law that told a company "you have to pay Johnny more money because he's got a baby."

Posted by Matt Black (# 2210) on :

quote:
Originally posted by Moo:

quote:
Originally posted by Marvin the Martian:
Should the recently-bereaved child of a cash-poor farmer who nevertheless owned the deed to his farm have to sell the place to some rich person in order to pay the inheritance tax? And if so, how does that do anything to fix the disparity?
The same applies to people who have established a prosperous small business, such as a restaurant. If the heirs have to pay a hefty inheritance tax, they will have to sell the business. This may result in the employees losing their jobs.

Moo

Business Property Relief applies in England and Wales to such an asset - usually at 100% relief rate. Similar with agricultural property.

Posted by Sioni Sais (# 5713) on :

quote:
Originally posted by orfeo:

quote:
Originally posted by QLib:
I think it would be quite interesting to say to big companies that don't pay tax in the UK - 'OK, but I'm afraid people who work for you will no longer be able to claim Tax Credits - the UK taxpayer is no longer going to subsidise your low pay - we're going to pass a law that obliges you to make up the difference by paying them extra'. Probably unworkable. I'm sure someone will be along here shortly to tell me why.
Wait... you have employees claiming tax credits?? Simply by virtue of being employees??

If I'm understanding you correctly, this is another one of those times when a suggestion that something is unworkable is easily countered by pointing out that there are parts of the world where it does work. This is the first time in my life I've heard this tax credits idea in relation to employment.

We do have tax credits in other areas - taxation on shares is the one that springs to mind. The tax on my piddly little shareholding (which I never even bought, it got handed to me, hence it's piddliness) is reduced based on the amount of tax already paid by the company.

Yes, they are Child Tax Credit and Working Tax Credit (plus Childcare Tax Credit). The term is a bit of nonsense because it isn't limited or capped by the amount of tax one pays or could have paid. Just as an example, one doesn't pay tax on much less than £7,500 but as a single man I'd get over £1,300 Working Tax Credit at that income, which represents the tax payable on about £14,000! It's really a income top-up that hasn't the stigma of the old Supplementary Benefit.

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