IHT- how to avoid if you have enough wealth

Eggplant, we all know what illegal immigrants are but I will explain they are people who have no right to entry to this country but enter illegally, usually in boats.

I am sure that both you and Doodledog have entrenched views, so I will not continue to debate. I can only assume you both have backgrounds maybeof school/ university positions. Its my view that this means somewhat of a naivety of outlook.

paddyann54

People seem to forget that if they paid a mortgage over 25 years their house cost a lot more than it said on the deed!Sometimes several times the cost

Apart from the mortgage and renovations there is also maintenance on a house which isn't cheap. If you rent this is the landlord's responsibility.
We have friends who have always rented and now moan that they have to go on paying even though they are retired. I remember how they used to say that renting was cheap and they could take three holidays abroad every year, as well as run a very nice car. Obviously rent is no longer that cheap, but they definitely had a much more extravagant lifestyle than those of us who had mortgages, builders bills and maintenance to pay for.

But this isn’t a game of ‘who had it harder’. It’s not about punishing anyone or rewarding anyone - it’s about trying to make the UK a fairer place.

In an ideal world it would be good to see more equality, but giving everyone a leg-up doesn't always work. You could give two people £100 on the same day, and a day later one would have made £1000 or more, while the other would have lost the lot.
That's why I think social care and the elderly should be the main area on which to focus any IHT gained. At least its the same demographic from the same generation. I'd be happy with that, and could accept some reform then.

it’s about trying to make the UK a fairer place
So start by setting an example by giving up expenses, subsidised meals and heating allowances and explaining exactly where that money will go and how it will help to make life fairer.
In my job, I can claim travelling expenses if I attend a course.
Of course if I do, it comes out of the school budget, which over time would mean cuts elsewhere.
If I choose to have a school dinner, I have to pay for the same size meal that the children get (primary school). I, like millions of workers take food from home, which I pay for.
Does being an MP make you incapable of preparing sandwiches or bringing food from home rather than expecting the taxpayer to fund your meals?

You’re right that not everyone can benefit from cash, but everyone benefits from good healthcare and education.

Even if we did give everyone a leg up, the fact that some would squander it shouldn’t mean that generations down the line are disadvantaged. Which is the point, really. I’m not advocating a total redistribution of wealth so that the playing field is level, as it wouldn’t stay that way for long, and if it did there would no incentive to try for more. But putting the playing field at the top of a hill that only some have to climb in order to play the game is harmful for individuals and the country as a whole.

escaped

But we all know that house prices rise significantly faster than wages do. In London they have soared because as long somebody can afford to buy in an area of high demand, it won't stop.
As a new graduate in 1980 London, I was earning £5k per annum. The house I was about to buy, before I unexpectedly inherited, was on the market for £40k. I've checked it out and the same house is £880k in today's money. Would that I would currently be earning £110k today. If only!
That's why a £1 million house might be pretty average in an expensive area. That 4% of the population who pay IHT may well double in number in the next few years when many oldies in our generation die.

You're quite right, we bought a smallish terrace house in 1976 which we sold in 1980 for £50,000, around the time you were buying. These houses sell for £1.6 million now. It isn't in a fancy street in inner London and is just outside an ultra expensive SW London local area postcode where houses can fetch well over double this. As you say a £1 million pound house is pretty average for many outer London areas.

I don’t see why that’s relevant though. As has been said before, prices are high because people are prepared to pay them. If fewer people had the money from inheritance then prices would fall.

Also, no tax is levied on the basis of whether someone acquired the money from the sweat of their brow or by simply living in a house for long enough. Tax is about numbers, not emotions. It doesn’t matter whether an income tax payer has earned their money from digging roads or writing a catchy jingle that pays a fortune every year in royalties - the taxman wants his cut regardless of the effort that went in.

Like everyone we paid high interest rates in the past. We have also (again, like everyone) maintained the houses we’ve lived in, and made improvements. In our current house we have had a new bathroom and kitchen and redecorated everywhere in the past couple of years. It has cost money, and at least some of that will be compensated by a rise in the value of the house. That’s perfectly normal, and not something that should be offset against tax.

We hope to cling to life for a while yet, and while we do we will enjoy having a pleasant environment to live in, which is why we had the work done. Why should our children (who have paid for none of it) not pay tax on whatever our estate is worth on our death? We could have kept the money in the bank- that would be taxed on that, too. Where is the logic in suggesting that allowances should be made for being an average earner or for modernising your living space?

You make a good argument there @ Doodledog, I concede that.
However, in their final house no owner gives a monkey's whether the improvements they make will be compensated by a rise in value of the house. You're not going to need it to up-size or to move, because you're dead. Likewise your beneficiaries are unlikely to give a monkey's as to how much they inherit either. You're absolutely correct in saying that tax is about numbers, not about emotions. BUT, and it's a big BUT, when your parents die, it's bad enough dealing with the overwhelming grief, (at any age), without the added of trauma of handing over a wodge of money of your loved ones' money to the government. That is why it is such an unpopular tax. That is why only a small minority are in favour. And from my perspective, that is why I object to people calling others "money grabbing, greedy, uncaring, smug", and any other words they choose to find, when they have never been in that situation. It's spiteful and smacks of envy.

If fewer people had the money from inheritance then prices would fall.

Sorry doodlebug they wouldn't. Inheritance pays no part at all in influencing house prices, because while some first time buyers may have help measured in lower 10s of £000s to get on the ladder, the vast majority of house moves, trading up, moving area etc do not involve inheritance.

London has a special and particular problem of foreign buyers, buying properties as an investment and then leaving them empty. London is seen as a good way of squirreling away money when you live in uncertain times in your own country as many wealthy Chinese, Russion, Arab and other nationalities feel they do. There are between 40-80,000 long term empty properties in London. But outside London this is not a factor in house prices.

Just a question ..... are London foreign buyers liable for IHT? What I'm asking, is it based on citizenship or on residency?

escaped foreign buyers are liable for inheritance tax if, at the time of their death, property here is valued at £325k plus. Doubtless accountants and lawyers will be used to protect assets. I think there are family trusts that can be set up.

@ronib thank you. That's good to know they are not exempt.

escaped in theory but in practice, generational trusts will most likely be used to protect assets here. I don’t know too much about it….

👍

I'm just thinking, again ...... if IHT were raised to an exorbitant amount in the UK, might that not drive wealthy people to take their money out of the property market here to purchase in say Italy, where the rate is 4%. Or even say Malta or say New Zealand where I believe there is no IHT? But then the very rich won't care anyway, or as has been said, they will find loopholes.

escaped

You make a good argument there @ Doodledog, I concede that.
However, in their final house no owner gives a monkey's whether the improvements they make will be compensated by a rise in value of the house. You're not going to need it to up-size or to move, because you're dead. Likewise your beneficiaries are unlikely to give a monkey's as to how much they inherit either. You're absolutely correct in saying that tax is about numbers, not about emotions. BUT, and it's a big BUT, when your parents die, it's bad enough dealing with the overwhelming grief, (at any age), without the added of trauma of handing over a wodge of money of your loved ones' money to the government. That is why it is such an unpopular tax. That is why only a small minority are in favour. And from my perspective, that is why I object to people calling others "money grabbing, greedy, uncaring, smug", and any other words they choose to find, when they have never been in that situation. It's spiteful and smacks of envy.

Well you won’t have seen that language from me. I said that on a board where many people are struggling with the withdrawal of the WFP, complaining about the government coming for ‘a pittance’ when there is an allowance of a million pounds was crass. I think that is true. The poster acknowledged that she used the wrong word, and I understand that that is easy to do, and accepted the withdrawal. I was criticising the comment not the poster anyway. I don’t call people names, even when I am called them myself.

I don’t discuss my own circumstances much as they don’t influence my opinions beyond the inevitable. Things are either fair or they’re not. I try very hard to keep emotions out of things, and much as I respect the grief of the bereaved I don’t think that invoking that is fair. We all pay tax throughout our lives and there are no rebates in difficult times.

I mentioned home improvements simply because others are saying that they paid high interest rates, have improved their homes etc, and coming up with all sorts of mitigations, suggesting that they’ve paid almost as much as their house is worth because of them. This is why I rarely talk about my own circumstances on threads like these . I suppose I was trying to show that I am not far removed from the issues, but lesson learnt. Anyway my point is that these things are irrelevant, whether done by me or anyone else. I thought that was clear.

Finally the notion of the ‘politics of envy’ is facile. It is an attempt to silence anyone who suggests that laws should apply to people better off than them (wherever that bar is set). It makes huge assumptions- both about the circumstances and the psychology of those being called envious, usually based on nothing at all.

M0nica

^If fewer people had the money from inheritance then prices would fall.^

Sorry doodlebug they wouldn't. Inheritance pays no part at all in influencing house prices, because while some first time buyers may have help measured in lower 10s of £000s to get on the ladder, the vast majority of house moves, trading up, moving area etc do not involve inheritance.

London has a special and particular problem of foreign buyers, buying properties as an investment and then leaving them empty. London is seen as a good way of squirreling away money when you live in uncertain times in your own country as many wealthy Chinese, Russion, Arab and other nationalities feel they do. There are between 40-80,000 long term empty properties in London. But outside London this is not a factor in house prices.

Property prices are simply set by supply and demand, demand is higher than supply. It’s simple economics buyers CAN afford to buy, only if they can’t find the money will prices fall. That’s true of ANY commodity.

If demand falls, prices fall down the line, building materials, labour, land prices, in the case of residential, investment is very profitable, it’s the very first choice for your money, historically the return has outstripped any other investment.

The only way prices are going to fall is if they become less attractive,

London properties held by foreigners would be owned by companies, and IHT would not apply, that brings a whole new realm of regulation, with the complex web of companies and holding companies hiding the gains made is very easy.

That is how I see it, David. I don't know about the foreign investors, but I think that there should be regulation to deter anyone from owning houses they don't live in.

Doodledog

That is how I see it, David. I don't know about the foreign investors, but I think that there should be regulation to deter anyone from owning houses they don't live in.

You can’t stop companies owning property, they do very often make gains, but within companies the offset them other losses.
For foreign investors it’s more a case of hiding money from their own government, often money of questionable origin, gains are not always the main objective.

Even today with tighter regulation there is plenty of dodgy money invested, it gets laundered better.

Doodledog

That is how I see it, David. I don't know about the foreign investors, but I think that there should be regulation to deter anyone from owning houses they don't live in.

Good luck with that one, DD

As to foreign investors, there are hundreds of high end properties in London which remain empty because their foreign owners see them as investment vehicles and rarely, if ever actually live in them...

commonslibrary.parliament.uk/empty-homes-and-overseas-buyers-what-do-we-know/

A few results worth investigating here if people are interested...

duckduckgo.com/?q=empty+foreign+owned+property+in+London&t=chromentp&ia=web

We have had some form of estate duty since Probate Duty was introduced in 1694 as part of the Stamps Act. This form of tax has gone through many changes, including name changes since inception.

The 1894 Finance Act brought in Estate Duty along with various exemptions. It was a progressive tax and in 1949 the rate on estates over £1m was 80%. obviously this was after the exemptions were taken into account.

So today's IHT seems to be reasonable in comparison.

On the subject of houses, many people chose to buy new or fairly new houses which do not need any work. Others chose to buy old wrecks on which they may spend a lot of money on improvements. It is their choice, one presumably made because they wanted a more interesting house, possible one which would show a greater increase in value.

David49 If legislation were in place and activated to inhibit people buying property and leaving it empty for years it would bring 50,000 more properties onto the London rental market, it would ease the rental problem. Some owners would decide to sell rather than tenant and manage their properties.

No, obviously IHT doesn't come into play, bit it is an example of how local factors can distort the market in localised areas while not affecting the overall regional market.

I know, Maisie, but if there were prohibitive taxes, whether levied as CT or on sale/death it might make the investments less attractive. It is so wrong that there are people sleeping on the streets at the same time as there are empty houses just accumulating value but not affording shelter.

I agree that owning multiple homes should be deterred. It benefits no one except the owner/investor, and it exacerbates the housing situation. I'm not sure I see it as immoral or greedy, however, despite all the sound arguments against it. I find it difficult to pass judgment on individual people for their fortune and their ability to buy additional homes with their hard earned money. It's the system which allows it that is wrong.

Just to clarify, I can see on this thread that you don't call people names, or even insinuate things about their behaviour or lifestyle, @Doodledog and @Maizie. I don't either, but there were some unpleasant implied comments earlier.