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New trust rules help
People like the sisters may get some protection from the new trust rules as well, particularly if the house value is currently below twice the threshold and they should live for seven years or more. Gifting a share of the house into trust gets it out of the estate, and the creation of a life interest for the settlor does not change that. 10 year charges will be minimal on an initial nil rate band trust, and CGT main residence exemption is still available.
[Edited to add 'twice the threshold']
jointly owned
I have recently received this advice from my will advisor, and can't quite see why it could not apply to the two sisters living together. If they owned the property as joint tenants, shouldnt the value of half the property drop out of the estate value, and the whole property pass to the surving sister, with no value used in the inheritance tax calculation ? Or has my will advisor told me a load of rubbish ?
IHT is crude and full of nonsenses.
If the tax system recognises that providing for oneself and one's dependents is a motive which should be encouraged, then death duties are an attempt to qualify that principle by saying that heirs should not enjoy unlimited wealth, some of which should accrue to society as a whole-hence exemptions for gifts to charity, for example.
IHT is a very inefficient way of putting these conflicting objectives into effect.
The Irish system makes far more sense. It taxes the heirs on their cumulative inheritances, regardless of from whom they inherit, but with a differing scale of exemptions depending on the relationship between the deceased and the heir.
Some detailed points:-
Why is BPR/APR 100% without limit?
Why not link the changes to a partial lifetime CGT charge on homes, with rollover relief?
If IHT were scrapped and substituted with CGT on death, that would anyhow have to be linked to a specific charge to CGT on homes [say on values in excess of £500k] and the rolled over charges would then become payable..
Avoiding IHT
The advice from Driscoll's will adviser certainly appears to be wrong as he has described it. The surviving joint tenant does automatically inherit the deceased's half share but this share is still subject IHT. However, there would be no IHT if (i) the sisters owned their property as joint tenants, (ii) all their other assets were either held jointly or were of equal value and (iii) the total value of their combined estates was not greater than twice the IHT zero-rate band (currently £570,000). There will be a lot of IHT when the second sister dies but, by this stage, they will both be beyond caring about it.
Turning to Simon Sweetman's hard case of a young couple dying together in an accident and thereby incurring a double IHT bill, to the detriment of their children. Surely this can be avoided with careful drafting of their wills so that there are 28 day survival clauses in bequests between them? If the second to die does not survive the first to die (assumed to be the elder in the absence of other evidence) by 28 days, then the bequest bypasses the second and goes directly to their children. Of course, they would need to own their home as tenants in common, not as joint tenants.
Caveat: Do not rely on the accuracy of the above statements but seek your own legal advice.
Oh dear....
Simon writes...
examples of real hardship caused by the tax are few and far between.
Bearing in mind that at current rates only 6% of estates pay IHT it may well be that examples are few and far between but...
In the last few years rising property prices have seen an increase from 4% to 6% in the numbers of estates caught and the future, if the tax is left unreformed, will see many more estates being caught, and along side that you will see more cases of hardship.
The two old ladies, as sisters they are unable to marry or create a civil partnership are but one example. Why indeed, on the death of the first should the home of the second be sold? However there are also many people who act as carers to elderly parents, friends and relatives, giving up their own lives to care for the elderly and saving enormous amounts for the exchequer in doing so, who are similarly compelled to see their home sold to pay this iniquitous tax.
In 1992 the labour party referred to the combination of CGT exemption on death and 100% BPR as a Double Tax Relief, and a relief too far. So why not consider restricting BPR to 75% (so that the liability on a business at death would be the same as a disposal of the business during lifetime) and use the proceeds to either exempt main residences from the tax where it constitutes reasonable provision for a survivor, or at least allow the IHT liability on the residence to be deferred without interest.
Death Duties/IHT inherently difficult
Because of the very high marginal rates needed to get even small amounts of revenue, & because the tax tends to fall at a time of stress (financial & otherwise) on the family, IHT must have many exceptions & special provisions & even so often causes completely unintended hardship.
For example, the family firm sold off may lead to a real deterioration in working conditons for employees, or the firm may be squeezed of cash at a time, with the most capapble ownere/manager gone & a new young inexperienced owner in charge.
In Australia the decision was made to scrap IHT for these reasons. In general, it hes not caused the country any problems.
On a personal note, I have taken part in keeping a family business alive until sale after my father died, with IHT the firm would just have gone under.
Rare?
You say "rare" - I had two US IHT cases in the past three years, and of them, only one owed UK IHT. You guessed it, single parent with three kids aged 18 - 24 having to sell their family home because they couldn't afford to keep it. Not only do they have to deal with mum being gone, they don't have a place to go on break while at uni. And we all know uni dorms close for various holidays - where are these kids supposed to stay during the holidays? They'll have to rent an apartment for use 10 random weeks a year? How pointless and a waste of their remaining assets.
Entrenched views
I think you either see concepts such as progressive taxation and redistribution of wealth as right or not. It's impossible to convert people from one viewpoint to another and to label Simon's views as class envy is simply to verbally throw stones from your side of the fence.
It's equally possible to use perjorative language to describe those who argue against IHT and Higher Rates of tax (rich getting richer, Thatcherite 'no such thing as society' concepts, blah blah), but there's little point in doing so.
The key question is what makes this a better world for us to live in and that doesn't always derive from a wealthier world
naked envy - yet again.
By littering his article with disparaging reference to "middle classes " and " upper classes", Simon Sweetman clearly reveals that his support for IHT is, yet again, based on naked class envy rather than fairness.
Despite writing at length, his wordy argument can, in fact, be accurately condensed to : " Those rich buggers can afford it, so tough".
How tiresome. Yet another professional extoling cloth cap virtues while driving a Volvo to some leafy suburb.
Class consciousness has been a curse for everyone in this country for centuries. Isn't it time to grow up ?
Best wishes.
Holdover relief
It would be very simple to provide an interest-free holdover relief for payment of the tax in the circumstance where the property is the home of a person living there; has been the home of that person throughout the [2 years] prior to the decease in question and for so long as it continues to be the home of that person. In this case, the property in question might only qualify if, and for so long as, the person living there has no rights over any other property in the UK. I say it should be interest-free because the beneficiaries would otherwise bear a double hit: they will not only receive a deferred entitlement to the asset whilst it remains in occupation but also an increased tax burden by reason of any interest charged.
I would not have thought that the cost of this relief would break the exchequer.
A fairer way...
I think that some people can find IHT very distateful where they have created wealth themselves that has already either been taxed to income tax via salary and/or capital gains tax through the sale of a business/shares in a business.
Whilst my view is that IHT is not an ideal tax, I think it could be administrated much better. In my view the nil rate band should be unique to each taxpayer and should be set at the level of all taxes paid by that individual throughout their lifetime. Therefore people do not suffer taxation on the same income/gains twice. From this allowance you could also deduct any benefits the individual has had from the state during their lifetime.
That way, an individual who makes a significant contribution to public revenue is not penalised for also being a prolific saver and likewise, those who inherit vast fortunes pay a proportionately greater share of their assets in IHT.
As ever, I agree Simon
I'd also like to spike the guns of those who are bound to say (becasue they always do) that IHT is unreasonable because it is double taxation. I've dealt with this argument here
http://www.taxresearch.org.uk/Blog/2006/07/31/lets-be-clear-inheritance-tax-is-not-doube-taxation/