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Taxation on inheritance and an odd choice of language… August 12, 2016

Posted by WorldbyStorm in Uncategorized.
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Here’s a report that should make people think about taxes on inheritance. Hugh Grosvenor, 25 years of age, has just inherited €10.5bn. But those who inherit such sums are usually free of the taxes paid by lesser folk.

…complex trusts which have allowed Britain’s wealthiest families preserve fortunes through generations by avoiding death duties.
It is thanks to a series of such trusts, dating as far back as 1953, that Hugh and his three sisters will avoid the 40 per cent levy families normally face on the death of parents.
“For people who are really wealthy, inheritance tax has become an optional choice,” John Christensen, director of the Tax Justice Network told the Guardian in the aftermath the duke’s £9 billion inheritance this week.
“If you are lucky to be born into a very wealthy family you will be untaxed. For most normal people this is extraordinary and unacceptable.”

Up to 40% is taxed in the UK. Here? Well part of the programme for government has the following:

Tax changes promised in the Government programme for partnership will sharply cut or eliminate completely inheritance tax for thousands of people in the coming years.
Under the changes, once they are implemented, children inheriting the family home will not pay tax on the first €500,000 value of the estate, which should mean the majority of bequests will not prompt tax demands.

I’m dubious about that to be honest. Inherited wealth (and inherited other aspects of life) are one of the major conveyer belts of privilege. €500,000 seems a pretty fantastic sum not to see any level of taxation on it. Currently the levels are €280,000 which is still a very significant sum. And by the by here’s an interesting column on just how elastic the limits currently are. And just to be clear there are mechanisms possible to avoid those for whom immediate tax liabilities were excessive and might cause hardship – for example repayment pauses until a property is sold on the market, etc.

Meanwhile that odd choice of language?

However, the new Duke of Westminster’s overnight transformation into a multibillionaire has not come without criticism and his illustrious story is tainted by widespread calls for an overhaul of the UK tax system that has allowed him to keep the entirety of his inheritance.

Tainted?

Comments»

1. Ghandi - August 15, 2016

“Under the changes, once they are implemented, children inheriting the family home will not pay tax on the first €500,000 value of the estate, which should mean the majority of bequests will not prompt tax demands”,

This will actually lead to an increase in IT liability for families with more that one child. If the extract is correct it changes from individual bequest limits to a value for the estate.

For example an only child inheritating €500k will pay tax on €220k, for children, two children inheriting the same amount €500k between them will pay no tax (€560K threshold). Three children €840k etc,.

If the above goes ahead then the two children would pay tax on anything over €500k rather than €560K

Also this argument over inherited wealth is somewhat false, leaving aside the Grosvenor’s of this world, most parents, those who have bothered to work and provide their home our of after tax income generally with a mortgage over 20/25 years which effectively means that they have paid almost twice what the purchase price was plus stamp duty etc., are penalise for having the audacity to look after themselves.

IT should be abolished for most people no increased. Those in most cases who do benifit from the daeth of their parents use that money to pay of their own mortgages thus easing the pressure on them.

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WorldbyStorm - August 15, 2016

I don’t think we’ll agree on this one Gandhi! I wouldn’t regard it as that they’re penalised for looking after themselves. It is that unearned income or capital should be taxed. Therefore the parents aren’t taxed on that income or capital that is passed to their offspring but that the offspring are taxed because it is unearned.

In any other case one would expect to get taxed on income or capital that is unearned (or earned come to think of it). That it happens within a family is irrelevant.

And I do think that as a matter of social policy it is right to level the playing field and make some effort to diminish inequalities. That’s obviously a difficult task but it is in my view the right thing to do.

There’s a broader question. My parents and my gran and great gran bought a house together in the 1970s. I never paid a penny into it. I don’t regard it as my house. How can I? It’s not my house. I’m dubious even about the idea of it as a family home except and unless there are people actually living in there. If and when I and others inherit a part of it I expect to pay tax on it. I think that’s the right thing too. If it has to be sold well so be it. If I came out with 50k I’d still be making, as it were, a ‘profit’. But in a way I find the whole thing a bit unpleasant because my ‘profit’ as it were is built around the death of a parent or whoever.

As I say, I don’t want to see people who’re unable to pay thrown out of homes and consequently I’m open to ways of ensuring continued occupancy – though I think it absolutely necessary that people ensure that occupancy of sons and daughters and whoever is framed by legal agreements.

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2. Ghandi - August 16, 2016

To follow your argument then it should be based on the “profit”, – sale price – acquistion costs, but there is no allowance for that where the mortgage has been paid off, where it is still being paid it is most liklely paid for by a life policy which is also paid for out of after tax income and then the whole value is thrown into the pot.

The logic of your argument is taht those who scrimp & save to give their kids a better future rather that spend their funds on themselves should be penalised and those who for want of a better term “piss it up against the wall” are to be congratulated in a sense.

If there is to be IT then the system of individual thresholds should continue and have decent limits.

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6to5against - August 16, 2016

I inherited recently. As wbs notes, the whole thing is emotionally complicated coming as itdoes with a death. But the idea that the tax involved is somehow punitive is luludicrous. The tax was paid before I saw a penny. As was the solicitor. Both of those bills were probably the highest I will ever pay, property aside. But that did nothing to limit the emotional comfort of the extra zeroes turning up in my bank a/c.
Nobody loses out on gaining an inheritance.

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6to5against - August 16, 2016

Related to the above is this: my parent had cconsiderably more wealth than i knew about, but I think their enjoyment of that was diminished by well founded fears over just how much their old age and infirmity would cost. I wonder how much wealth is hoarded due to similar fears and to what extent that drags down economic activity.

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Ghandi - August 16, 2016

I don’t think that hoarded is really the correct phrase particularly where there are well founded fears of the cost of old age. It is sad that they limited their enjoyment of their wealth and I’m sure had they considered that the State would take a fair chunk of it then they would have been better off spending it.

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Ghandi - August 16, 2016

But is’t that the thing because the tax was paid before you got your cut you didn’t really see the total being yours, when you don’t have to pay it out directly then it doesn’t mentally have the same effect. I’m sure the solicitor only got paid a modest fee, which probably did not reflect all of the work he had to put in, and even of that modest fee 23% went in VAT.

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WorldbyStorm - August 16, 2016

To follow your argument then it should be based on the “profit”, – sale price – acquistion costs, but there is no allowance for that where the mortgage has been paid off, where it is still being paid it is most liklely paid for by a life policy which is also paid for out of after tax income and then the whole value is thrown into the pot.

But we’re talking about two different sets of people. Those who bought and paid for the house and those who didn’t. The first did indeed pay for the house. But if the second get the house as an asset – which of course it is – then they should pay tax on that. Again it’s unearned income, in this case not cash but property.

I don’t pay tax on my mothers house. But if I inherit it I then do pay tax (or I can sell it) because it is now mine. I don’t think that’s massively controversial. Some gifts are so small as to be inconsequential. But some things aren’t.

The logic of your argument is taht those who scrimp & save to give their kids a better future rather that spend their funds on themselves should be penalised and those who for want of a better term “piss it up against the wall” are to be congratulated in a sense.
I’m not sure it is. I scrimp and save for my child, we all do. But it’s not infinite. I only have so much. And I and I suspect most people spend some money on myself or themselves as well. I don’t think that sacrifice for ones children to the point of poverty makes any sense at all.

Moreover some people simply aren’t in a position to scrimp and save. All their disposable income is gone in just getting by. What about them?

Moreover I don’t believe that it is a good thing just to hand stuff to one’s children. Particularly not property. What is the “better future” part about not achieving for oneself, not making one’s own effort etc? That would be a concern of mine, though its perhaps a tangent to this discussion.
I had no expectation of inheriting my parents house – and still don’t. Any family with more than one child is going to be one where – all things being equal, only a part will be inherited, at best. And I wouldn’t encourage my child to think the house is hers if she’s not living in it.

The base reason is why should – again, through an accident of birth, one child inherit x and another not? Obviously one cannot – at least within the bounds of the constitution, prohibit that. But one can – as noted earlier, soften some of the harder edges, make it easier for others and strengthen the broader society.

I’m unsure about what you mean by the second part of your argument. For me inheritance tax goes to the state to fund social services such as health, housing, transport, etc, etc. It’s nothing to do with the moral or other value of individuals in the society. Nor is about some sort of hand out for indolence or worse. But given that there’s no way to police this, and we know that often those who inherit are quite happy to piss away stuff it’s hard to feel that’s a defining argument one way or another.

6to5against makes a very key point here as well. My mother’s house may well go to fund her health or residential care as she gets older. We’ve had these discussions in our family and it’s been a good thing. Given female longevity on her side the 90s are a reasonable prospect and she’s only in her 70s. So – and I’ve brothers too, what expectation is there for me? In my 70s I might get something. Doesn’t worry me at all. I’d sooner she lived longer again. But beyond that I’d always sooner stand on my own two feet. Sure. I’d like to give something to my child – but not too much, and there’s the issue of medical costs for me and my partner too.

If there is to be IT then the system of individual thresholds should continue and have decent limits.
I’m all for reasonable terms. As I say, the one thing I would do is protect people from crushing overhangs of IT that could force them to lose their primary habitation. That isn’t right. But it can easily be dealt with.

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3. Gewerkschaftler - August 16, 2016

Whenever you talk about taxing the very rich immediately people roll out the example of the borderline well off.

It’s a distraction. A deliberate distraction. See the comments above.

We need an order of magnitude based inheritance tax to break the continued and increasing concentration of wealth in the hands of fewer and fewer families.

I’d make the taxation based on the total bequeathed.

So 1m to 10m – Taxed at say 50%.
10m to 100m – Taxed at 80 %
100m+ – 90% Taxation

Under 1m I’m not that fussed – these are not the really rich.

Or thereabouts.

All tax-dodges like trust funds etc. made immediately illegal.

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Ghandi - August 16, 2016

That is part of the point I was making, if we are to have IT then it has to have thresholds which are fair.

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