IHT- how to avoid if you have enough wealth

But with the average house price in the Uk being £282,000, £470,000 in the south east and the majority of the deceased not having been in care. There are quite a large nunber of average families where the total inheritance for a couple could be well over £500,000.

It is true, but you can always choose a point of comparison to make anything sound good/bad or high/low.

Compared to the average wage, or the average amount of savings, a million pounds is a lot.

True Allira.

I do remember a colleague telling me that £100,00 was nothing these days! Thst was very many years ago and I was astonished as we had little in the way of savings.

Relatively speaking, £500,00 or even £1 million is not a lot these days when compared with the vast wealth accumulated by some in this country.
Some of these people may be evading tax or using schemes to hide their wealth to avoid tax and setting up schemes so that their own families never pay any inheritance tax.
It's people like Chocolatelovinggran and her heirs who are the ones dutifully paying, not the super-rich.

That's a fair point, Chocolatelovinggran

I think a fairer way would be to limit the amount an individual can inherit, rather than taxing the estate, as families come in all shapes and sizes. A single parent with five children is in a very different position from a couple with an only child.

growstuff, as I said earlier on in the thread, I have no issue with IHT. However, I do challenge the statement about my status as a " wealthy parent". I am long divorced, and raised my children with very little support from my ex husband , on a teacher's salary.
IHT for single people is £500K, which is the value of my three bedroom semi in the SE, so my heirs will pay tax on my savings.
I repeat, I am not taking issue with that, but I am not wealthy. I have been thrifty throughout my life. I am not a millionaire.
The children will probably inherit enough money from their father for a book of second class stamps.

growstuff

Allira

However, as Maizie(?) pointed out above, there are some who don't care about inequality and the effects on society as a whole. It's far easier to be smug and blame the "have nots" for their own situation.

May I point out that often Norway is held up as an example of how a state should be run and that perhaps the UK should follow Norway's example.
Norway abolished inheritance tax 10 years ago.

If the very wealthy were taxed at source in the UK and those who attempted to evade tax were stopped and made to pay their dues, some loopholes were closed, then there might be less equality in this country.

But Norway does tax wealth.

Which is exactly what I thought I said should happen here.

What a great post M0nica

ronib

I think that the new government is going to force some pensioners to leave family homes they have lived in all their lives. I believe that the single person discount for council tax will be removed, coupled with higher energy and food bills. Not forgetting the WFA for the just about managing. Unless equity release is taken, pensioners will not have funds to remain in properties designed for families. This in turn will increase the availability of family homes and encourage downsizing. More flats are going up here than any other type of housing.
I neither agree nor disagree with this policy.

They're going to have to encourage builders to build more homes suitable for older people then, because most new builds are larger family homes, albeit with small gardens.

I don't mean one bedroom apartments with kitchen/lounge/dining area and a tiny shower room because some of us would like a bit more room than that if possible, nor retirement complexes, but some choice and availability might encourage us to downsize.

David49

ronib

I blame the housing market growstuff. I blame governments.
The obvious divide in prices between the north and south in housing prices is staggering.

Housing cost reflects the working income of the area, nothing to do with cost of living, everything costs less “up north”, in the south east everything costs a lot more.

Those above the “working income” level buy status homes or second homes and all sorts of expensive “toys”, they pay tax on all those. IHT and before that Estate Duty brought about change by breaking up most of the large estates after WW1, now that wealth is internationally portable the IHT taxation threshold needs to be lower.

I dont believe that IHT can bring about social change in the way it did last century, it can only be a source of general taxation and applied to social benefits. Those that are successful and have a wealthy lifestyle are going to get taxed more in one way or another, whether they come from a advantaged or disadvantaged background.

How can it be a source of general taxation when it only affects a very small percent of the population ie those who are fortunate enough to have had wealthy parents?

I'm baffled by the reasoning for lower IHT.

ronib

I think that the new government is going to force some pensioners to leave family homes they have lived in all their lives. I believe that the single person discount for council tax will be removed, coupled with higher energy and food bills. Not forgetting the WFA for the just about managing. Unless equity release is taken, pensioners will not have funds to remain in properties designed for families. This in turn will increase the availability of family homes and encourage downsizing. More flats are going up here than any other type of housing.
I neither agree nor disagree with this policy.

So do you have a crystal ball?

Allira

^However, as Maizie(?) pointed out above, there are some who don't care about inequality and the effects on society as a whole. It's far easier to be smug and blame the "have nots" for their own situation.^

May I point out that often Norway is held up as an example of how a state should be run and that perhaps the UK should follow Norway's example.
Norway abolished inheritance tax 10 years ago.

If the very wealthy were taxed at source in the UK and those who attempted to evade tax were stopped and made to pay their dues, some loopholes were closed, then there might be less equality in this country.

But Norway does tax wealth.

Spot on Doodledog!

ronib

I blame the housing market growstuff. I blame governments.
The obvious divide in prices between the north and south in housing prices is staggering.

What decides house prices is what proportion of a house owners income the lenders belief they can afford to pay out each month as a mortgage payment, given all the other costs of living.

Generally, long term, that has been seen as being about a third of total income. This sum of money is allocated into two parts, the first part is the interest due on the loan and the second is the repayment of capital.

When interest rates are high, which they were for most of us. So much of our monthly payment was attributed to interest rates, that capital repayments were very low, and as mortgages have a fixed end date, usually 25 years, the capital amount this would cover was lower, so the amount we could afford to borrow was lower, and so, therefore, were house prices.

In recent years we have seen the reverse. Very low interest rates, meaning the interest part of the monthly payment is lower, the amount available for capital repayment higher, so larger amounts can be borrowed, so house prices go up as people borrow as much as they can to buy as good a house as they can afford to compete to buy available houses

Which brings us to the other factor. The law of supply and demand. If demand for houses is matched by supply, ie, as many potential buyers as sellers. prices remain stable. If you have rapid population growth and demand for houses to buy increases but supply doesn't, buyers compete to buy available properties and prices rise.

Over recent decades, we have seen three factors put excessive pressure on the housing market in the south east, firstly national population growth, most of which has been concentrated in the south east and secondly the migration of people from the north to the south east for employment, and thirdly higher wages than further north, in order to encourage people to move south and fill vacant jobs.

The two rules I mention above then come into play. How much money lenders will lend depends on interest rates, currently quite low, so loans will be bigger, but where so many more people want to buy than there are houses are available, they all outbid each other to get houses, so house prices get pushed up until the number of those who can afford to buy matches the number selling, and the higher wages go, the higher the price rises.

In the north the reverse applies, people moving south, reduces demand on housing in the north. Supply and demand are more in balance and wages are lower, so maximum loans are smaller, so prices are lower.

Other things can affect prices short term, optimism/pessimism about the future, national financial mismanagement, intenational crises, but over longer time spans the movement of house prices is relentlessly governed by how much lenders will lend and supply and demand.

What are people blaming the housing market for? And isn’t 'everything costing more' a definition of the cost of living? Surely housing costs cause the 'working income' of an area, rather than simply reflect it? There used to be London Weighting - I haven't seen that for a long time (although it's ages since I looked at jobs ads) but even without an explicit additional payment it is the case that wages are higher in the SE because housing costs make it necessary.

There are ‘status homes’ in every area, too. It’s just that the sort of housing that 'ordinary' families need is ridiculously expensive in the SE. The more people who can only afford houses simply because of large inheritance based on the fact that their parents bought one before the explosion in prices, however, the more they will stay out of the reach of those who can’t. That is a fundamental inequality.

I would argue that house price differentials go further though - they affect the economy and stifle both innovation and life chances. I have known many students/graduates who have been unable to take up job offers at entry level in London and surrounding areas (and don’t get me started on internships!) because housing is too expensive. Those jobs can then go to less able people who happen to have relatives who can put them up, or parents who can give or lend them a deposit on a flat. The sector I’m talking about is difficult enough for ‘non-traditional’ entrants to break into, and housing differentials can make things worse. Those who can take the jobs often settle in London and the SE and go on to start up their own businesses there too, in time, so it continues down the line. Those who can't will still find work if they are talented, but if it is in cheaper areas it will pay less, and the house they buy will appreciate in value far less, so after ten years or so they'll be unable to relocate, even if they haven't found a partner and started a family by then. Starter jobs make a huge difference to career trajectories - the idea that some 'work for everything they've got' and those with less must have failed to work as hard is facile. There are all sorts of other factors at play.

The problem will be across all sectors, so there is a huge waste of talent, which is bad for everyone. IHT won’t stop that, obviously, but I don’t see how one thing can, in isolation. It needs to be part of a bigger package.

In the end, assuming the IHT threshold remains way above average income (quick mental arithmetic suggests that £1m is 40 x £25k and that's not allowing for the fact that the £1m is free of tax and earned income isn't) it won't make much difference to the heirs, as if property prices fall they will just use a bit less of their windfall to buy a house that slightly more people might be able to afford.

Calendargirl

If my children inherit enough from me to pay IHT, it won’t be a problem for their own families in the future.

It will all have been spent.

😁

However, as Maizie(?) pointed out above, there are some who don't care about inequality and the effects on society as a whole. It's far easier to be smug and blame the "have nots" for their own situation.

May I point out that often Norway is held up as an example of how a state should be run and that perhaps the UK should follow Norway's example.
Norway abolished inheritance tax 10 years ago.

If the very wealthy were taxed at source in the UK and those who attempted to evade tax were stopped and made to pay their dues, some loopholes were closed, then there might be less equality in this country.

I think that the new government is going to force some pensioners to leave family homes they have lived in all their lives. I believe that the single person discount for council tax will be removed, coupled with higher energy and food bills. Not forgetting the WFA for the just about managing. Unless equity release is taken, pensioners will not have funds to remain in properties designed for families. This in turn will increase the availability of family homes and encourage downsizing. More flats are going up here than any other type of housing.
I neither agree nor disagree with this policy.

I don't think it was death duties or IHT that brought about social change (most notably post WW2 until the late 1970s), it was higher wages and a narrowing of the differentials between workers and management. Also the fact that we had a far wider industrial base which offered plentiful reasonably paid employment.

Once Thatcher had destroyed the industrial base in favour of a services based economy without replacing industry jobs with anything meaningful for the millions thrown out of work in the former industrial areas (remember 3 million unemployed?) the gap between the poorly paid or unemployed and the well paid/wealthy was bound to widen. It's been further exacerbated by cuts to welfare and the rise of the gig economy. And austerity.

The arguments for the advantages to individuals and society of a more equable distribution have been made frequently on here, as have those for reducing the upward movement of wealth which concentrates it in fewer hands. I'm not intending to repeat them.

ronib

I blame the housing market growstuff. I blame governments.
The obvious divide in prices between the north and south in housing prices is staggering.

Housing cost reflects the working income of the area, nothing to do with cost of living, everything costs less “up north”, in the south east everything costs a lot more.

Those above the “working income” level buy status homes or second homes and all sorts of expensive “toys”, they pay tax on all those. IHT and before that Estate Duty brought about change by breaking up most of the large estates after WW1, now that wealth is internationally portable the IHT taxation threshold needs to be lower.

I dont believe that IHT can bring about social change in the way it did last century, it can only be a source of general taxation and applied to social benefits. Those that are successful and have a wealthy lifestyle are going to get taxed more in one way or another, whether they come from a advantaged or disadvantaged background.

ronib

I blame the housing market growstuff. I blame governments.
The obvious divide in prices between the north and south in housing prices is staggering.

And why do you think the housing market is as it is?

Hint: it has little to do with immigrants.

If my children inherit enough from me to pay IHT, it won’t be a problem for their own families in the future.

It will all have been spent.

I blame the housing market growstuff. I blame governments.
The obvious divide in prices between the north and south in housing prices is staggering.

For those who don't want to read the whole of the link I posted, here is the conclusion:

"Great Britain like many advanced economies has seen a rapid widening in wealth inequalities from a cohort perspective (Boserup, 2017; Black et al. 2020, Gregg and Kanabar, 2021). The fact wealth significantly affects an individual’s living standards and is easily transferable implies that inequalities early in life will have profound implications over time, such as influencing major lifecycle events including homeownership. Therefore understanding which
components of wealth drive wealth persistence from an intergenerational perspective is of paramount importance if policymakers are to design effective policies to improve wealth and social mobility. To our knowledge no studies have attempted to understand the relative importance of different wealth types in driving intergenerational wealth persistence, something we address in this paper. We show that in the case of GB the change is largely attributable to growing inequalities in housing wealth and this is becoming increasingly stratified by parental wealth. Over a six-year period (2010/12-2016/18) we estimate parental wealth increases the IWE in housing by 0.18 log points and if maintained implies the IWE in housing will double
in roughly one century.
A second major finding is that across successively younger cohorts homeownership and housing wealth accumulation is becoming increasingly associated with parental wealth. Cohort analysis shows that among younger individuals in their early 30s from the wealthiest backgrounds housing wealth is being accumulated at a similar or even faster rate than older cohorts. On the other hand, individuals from the most disadvantaged backgrounds in their early
30s are not only less likely to report homeownership compared to slightly older cohorts but the rate at which housing wealth is being accumulated is also falling compared to individuals from the same parental background but who are slightly older. By age 35 homeownership levels are
three times higher among offspring whose parents are high educated homeowners compared to those whose parents are from a low educated renter background, and in terms of housing wealth the former group holds approximately ten-times the level of housing wealth compared to the latter. Such differences in housing wealth between the most and least advantaged persist between ages 30 and 64 and are set to widen further. Importantly, we show that our findings
hold even after controlling for a range of individual characteristics which are likely to influence
homeownership such as earnings and education.
Taken together the results imply the penalty for being bornto parents of low wealth is growing rapidly over time in GB and is influencing major lifecycle decisions such as the ability to own a home and accumulate housing wealth. Such findings have implications for the structure of society in the long run and raise serious political economy questions related to social cohesion and civic participation. Indeed, the historic returns from wealth versus human capital and its implication for individual social mobility has garnered international debate in recent times (Piketty, 2017). In the context of our study the returns to housing are non-trivial, over our sample period (2010 and 2018) average house prices in GB grew by over 37% and by over 11% in the year to September 2021 alone (ONS, 2021). Despite policies targeted at young
people to improve access to homeownership in the UK such as Help to Buy, our findings suggest parental wealth influences the likelihood of homeownership and the strength of this relationship is growing over time. A key question then is to understand whether the relative importance of individual versus parent characteristics, including transfers, is changing over time and driving wealth inequalities. In addition, we need a better understanding of household
level wealth dynamics across cohorts and over time, a focus of ongoing research."

However, as Maizie(?) pointed out above, there are some who don't care about inequality and the effects on society as a whole. It's far easier to be smug and blame the "have nots" for their own situation.

GrannyRose15

M0nica

Our estate will be liable to IHT and beyond giving children odd sums at various times, we are doing nothing to avoid it.

We have both had fortunate lives, passed our eleven plus, went to university with maintenance grants, had good careers and confortable retirements. All in a country where the rule of law prevails. We are quite willing for IHT to be paid on our estates after our deat. We received so much, we are happy to give back.

I hope you polish your halo every day. Can’t let it get tarnished can we?

What a revolting comment!