At present, unlimited amounts of money and assets can be gifted to friends and relatives without paying any eventual inheritance tax, as long as the transfer happens at least seven years before the person giving the gift dies.
A so-called taper tax rate of between 8 and 32 per cent is applied to gifts given between seven and three years before death. Money given less than three years before is taxed at the full inheritance tax rate of 40 per cent.
A lifetime cap on gifts would allow the Treasury to raid funds given from parents to children many years earlier in an effort to boost the tax take.
My vision of a society is one in which that wealth to be independent flows down the generations. Fopr others it’s pone in which no independent wealth is possible therefore so is that independence impossible.
Ho Hum.
Ooh, I wonder whether they’d try to make it retro-active? “J’accuse, thirtyish person, your parents paid your way through university for you, and gave you a bung towards the deposit on your first flat, and to help you start paying into a pension, and now we’re coming to tax that money!”
I suppose they could even make private school fees retro-actively subject to the new tax – that really would kibosh private schooling for everyone but zillionaires.
What else might they pick on? “J’accuse, eightyish widow, we note that your children have been gifting money to help pay for your care home: that’s subject to inheritance tax nowadays, dear.” I suppose that could be avoided by replacing the gifts by loans, at least if the old dear is compos mentis enough to sign for a loan. But gifts to minors can’t be replaced by loans.
It’s never occurred to me: assume your offspring live abroad. Suppose you gift them and their children almost all your capital. When you die you have almost no capital left. Does that mean that HMRC can whistle for the Inheritance Tax? Your estate may owe it but it has no cash. Your offspring can’t be charged for the tax because they are not UK tax residents and anyway live outside the jurisdiction of our courts.
@ dearieme
HMRC would put a charge on your children’s assets and apply to the government of the country in which they reside to enforce it. I shouldn’t bet too much on the international brotherhood of bureaucrats saying “you have no jurisdiction”
I assume HMRC’s position is that the tax was due when the gift was made, and as a courtesy they’re going to wait and see if the parents die or not before starting the process of collecting it, rather than taxing now and refunding if they’re still alive.
And if that’s the case they just take your expat children to civil court in whichever nation they’re hiding in, because they’ve got a nice simple debt, not a complicated obligation under tax law.
My gut feeling is that if this method actually worked, we would see a trend of people becoming elbonian citizens a few weeks after their cancer diagnosis, then telling the elbonian revenue service that they can’t collect any tax because the estate was all given away preemptively in the UK, and telling HMRC they can’t collect any tax because they’re an elbonian citizen living in elbonia who just happens to be giving gifts to their children in the UK of assets that just happen to be in the UK.
Clealry the plan is to encourage everyone to spend all their money before dying, thus boosting the tax coffers through VAT receipts and the rest of the taxation Borg hive
Thing is Reeves is potentially creating a generation of state pensioners with no assets – not so good for long term care etc
What I find encouraging – particularly on the back of Steve’s comment thread yesterday on immigration, is that the chickens are coming home to roost for advocates of MMT. Clearly there are definite limits on the Magic money tree. Reeves knows this and is desperately trying to get as much money as possible to try and satisfy the beast that is the public sector. The main concern is the collateral damage that the UK’s complete collapse (which I think is imminent) will cause.
Are they going to admit it though VP? Can’t see Spud being reasonable somehow.
Still expecting big tax increases this year and probably the IMF next year.
It wouldn’t surprise me if the IMF has already opened a case file for the UK
As I said yesterday, greedy little shits who see someone else they think has money, and think that money should be theirs to use.
@starfish “Thing is Reeves is potentially creating a generation of state pensioners with no assets – not so good for long term care etc”
How much of a f*ck do you think I give about that? They shouldn’t have been rich in the first place. R Reeves
“So Mr Smith, about that pram your parents bought you when you were a baby. They referred to it as your pram so we are treating it as a gift for IHT purposes. Apparently you had some baby toys too. We will just estimate their value for now unless you have receipts.”
I wonder if this is an Anglo Saxon issue
My bro in Clogland complains that if we bung him cash in euros he has to pay tax on it. But then again, I can never get any sense out of him.
Are Grikath or BiG here today ? Are gifts taxable in Grossdeutschland ?
@john77 “HMRC would put a charge on your children’s assets”
Which UK court has the power to put a charge on assets outside the UK which belong to people who are not domiciled or resident in the UK?
Your fine government feels entitled to all your stuff. They will take all they can, they just need you to accept it.
“The art of taxation is procuring feathers from a goose with the least amount of hissing.”
The fact is, your wealth isn’t yours. You hold it in joint ownership with the government. You will get better terms in Argentina.
@john77: in that case I suppose gifts to the children and their bairns should be surreptitious.
(Years ago I heard someone at our lab tea-break boasting about surreptitious gifts he had received from his old Mum. Was it a wealthy family? I doubt it; the chap concerned was our storeman. But owning a house in Cambridge perhaps made the old dear wealthy enough for IHT.)
dearieme said:
“It’s never occurred to me: assume your offspring live abroad. Suppose you gift them and their children almost all your capital. When you die you have almost no capital left. Does that mean that HMRC can whistle for the Inheritance Tax?”
You’d have to have all your assets outside the UK, otherwise HMRC could seize them to pay the tax. The main problem for which is your house (I think most of the asset value for inheritance tax is housing).
Also if the estate doesn’t pay, there is a secondary liability on the recipient of lifetime gifts, so your heirs would also need to keep themselves and all of their assets (not just the ones you gave them) outside the UK forever.
You’d then need your heirs to keep themselves and all their assets out of countries that apply the OECD Mutual Assistance Convention, because they will enforce HMRC debts. I’m not sure if there’s anywhere that hasn’t signed it, but I think possibly Algeria and Gabon haven’t actually ratified it yet.
Dearieme
Indeed that is how it works.
Our old mum gifted us some money a few years before she went last year.
She was by no means well off, but I still had to fill out a 40page IHT declaration with “Zero” at the bottom.
Some poor berk at the HMRC has had to go through this to tick the null sum at the bottom.
A waste of everybodys time that could have been better spent using that money to snort coke off a hooker’s wossnames
What if the heirs received royalties from art, literature, music, patent, etc?
Would the flow be capitalised and IHT charged on the notional capital?
Or would IHT be added to income tax on the dividends?
@Ottokring
Some poor berk at the HMRC has had to go through this to tick the null sum at the bottom
or perhaps
Some poor berk “Working From Home” for HMRC had to
go through this totick the null sum at the bottom …. as their days work.@ Ottokring
When my mother-in-law died, my wife and her sister were executors; fortunately my sister-in-law agreed that I (a former actuary so assumed to be good at sums) should tackle IHT. It took me about three months to assemble all the data and fill in 140-odd pages of HMRC forms in order to prove that NIL tax was payable. It was a damn sight easier to complete the IHT return after my mother died when there was some tax to be paid!
@ dearieme
They can be quite open if they meet HMRC conditions (“gifts out of surplus income that do not affect one’s standard of living” – a rule that dates back more than half-a-century because I first heard about from a friend of my parents who was subsidising her only child’s standard of living out of her generous widow’s pension from ICI – or “less than £3,000 in a tax year” or trivial amounts).
I keep a spreadsheet that my elder son can use to complete the IHT forms (and sent him a copy before my wife and I got on an aeroplane in April)
“The main problem for which is your house”. You could reduce that a bit by using equity release or even by selling up and moving into rented accommodation – which I suppose is what a care home is. The capital you got by selling up could be used to buy an Immediate Needs Annuity which will pay your care home fees tax-free. I suppose that latter route is well known – I wonder how many people use it.
You know the old saying: in life the bastards tax you on income so concentrate on capital gains. In death they tax you on capital so late in life invest for income.
Thing is Reeves is potentially creating a generation of state pensioners with no assets – not so good for long term care etc
Reeves only cares about winning the next election, what happens to future chancellors is not her problem and from what we’ve seen she doesn’t appear to have the intellect to figure out 2nd order effects anyway.