Inheritance Tax Penalty: who pays?

[sponge]

My uncle died last July and we had to pay £92,000 inheritance tax. It’s a sickener and a disgrace.

 

[zippie]

Should the Executor be liable for the fine or should it be taken from the Estate before paying beneficiaries?

Definitely deducted before paying beneficiaries.
In our instance the IHT bill had to be paid before probate was granted, probate needed before house could be sold. As funds were available we were able to do so, the bank released the money to HMRC. Also if married and the last survivor dies you can claim extra £325k of the predecessors partner to increase your IHT tax allowance to £650k.

 

[42]

My uncle died last July and we had to pay £92,000 inheritance tax. It’s a sickener and a disgrace.

Which means you've just inherited £450k after tax & complaining

 

[sponge]

Which means you've just inherited £450k after tax & complaining

I’m not complaining at all, if anything I’d prefer my uncle to still be alive and me to receive nowt but I’m also still allowed an opinion on whether or not I think inheritance tax and the amount you pay is fair or not.

 

[buster]

My uncle died last July and we had to pay £92,000 inheritance tax. It’s a sickener and a disgrace.

You didn’t pay a penny .

 

[sponge]

You didn’t pay a penny .

Ok.

 

[Harry Angstrom]

I’m not complaining at all, if anything I’d prefer my uncle to still be alive and me to receive nowt but I’m also still allowed an opinion on whether or not I think inheritance tax and the amount you pay is fair or not.

A tiny bit of IHT planning would have saved that money. That’s why I think the tax is unfair. It’s nice to get a legacy but when 40% is taken from the taxable amount because the person dies early or did not seek tax advice, it’s a little unfair. Imho.

 

[Kent_Mackem]

My uncle died last July and we had to pay £92,000 inheritance tax. It’s a sickener and a disgrace.

I'm sorry to hear about your uncle.

Maybe look on the positive side though. I hope you haven't overlooked the fact a tax payment of £92k means you got to keep a massive amount of inheritance.

There are far worse problems than paying "too much" tax.

 

[Harry Angstrom]

Well it turns out it was was the latter so no issue but the inept Executor mistook the partial interest payment for a penalty and said it was a penalty which caused a brouhaha for a day or so until wiser heads prevailed.

I assumed an executor wouldn’t be personally liable because they are doing it as a favour most of the time. Unless they are direct beneficiaries. I’ll think long and hard before agreeing to it.
If there was any complications or moaning from the beneficiaries I’d just get a solicitor to do it all or resign.

I'm sorry to hear about your uncle.

Maybe look on the positive side though. I hope you haven't overlooked the fact a tax payment of £92k means you got to keep a massive amount of inheritance.

There are far worse problems than paying "too much" tax.

£92k is a lot of money to give away to the government

 

[Kent_Mackem]

£92k is a lot of money to give away to the government

Tax isn't "given away". It's a legal payment that is going back into the system though. It's due on money that the recipient hasn't earned themselves but has landed on their lap.
Whatever amount it is, the recipient gets far more in their pocket..... as a freebie.

I'd love to get 400+ large as a freebie. It would sort my mortgage out. I'd have no problem paying the tax due on it. I'd be happy to walk the cheque to HMRC in London if they asked me to.

 

[Harry Angstrom]

I'm sorry to hear about your uncle.

Maybe look on the positive side though. I hope you haven't overlooked the fact a tax payment of £92k means you got to keep a massive amount of inheritance.

There are far worse problems than paying "too much" tax.

£92k is a lot of money to give away to the government

Tax isn't "given away". It's a legal payment that is going back into the system though. It's money that the recipient hasn't earned themselves.
Whatever amount it is, the recipient gets far more in their pocket..... as a freebie.

It is easily avoided by most people in the know. It really is a discretionary tax for all but the uninformed or the unfortunate. If I’m lucky enough to leave my daughter lots of cash, I will make sure that the IHT liability is nil. I’m not “giving” my money to the government.

 

[Darlo1973]

The thing is that the incredibly wealthy families just tie it all up in trusts etc and don't pay a penny in tax. In London you're never going to find a decent property below the threshold so I know of instances where it means people are made homeless as a result. My friend Web drowned abroad and his son inherited but was just starting University and found himself either homeless or with a massive tax bill.

IHT is easily avoided with some proper financial planning but it is examples like this with unexpected deaths and young dependants which sound unfair.

I have a friend whose parents once they retired, massively downsized their house (A big 4 bed detached near Guildford - worth a fortune - and moved to a doer-upper cottage in Yorkshire) which allowed them to give their children and grandchildren a big lump sum each - I think he got over £100,000 tax free. They were both healthy so the 7 year limit wasn't really a worry.

I don't think IHT should be totally scrapped but perhaps it needs a total review of how it works.

 

[Kent_Mackem]

£92k is a lot of money to give away to the government

It is easily avoided by most people in the know. It really is a discretionary tax for all but the uninformed or the unfortunate. If I’m lucky enough to leave my daughter lots of cash, I will make sure that the IHT liability is nil. I’m not “giving” my money to the government.

Sure, but that's a slightly different argument.

I just think in general terms there are two types of tax: tax on purchases (VAT, stamp duty, alcohol/fuel duty etc) and tax on receipts (income tax, inheritance tax, capital gains tax etc). For most of us "income" is something we get paid for work we do in return. Most people need to put several hours, or do hard graft, in order to get an amount which barely covers their outgoings. Those who have earned (or are privileged enough to have been handed) a wedge of coin can let that wealth earn the income. Those people get paid a lot more for doing a lot less.

But with inheritance the recipient hasn't done anything to earn the money. I just think it's a bit tacky complaining about the tax payable (a rate set only only on the excess once a considerable threshold has been reached) on a freebie when many people aren't going to get anything at all. It's like The Parable of the Lucky Git.

I'd be grateful for what I have left in my hand rather than complaining about what had to go to HMRC. I suppose it just depends on the attitude of the recipient and how they regard freebies.

 

[Harry Angstrom]

Sure, but that's a slightly different argument.

I just think in general terms there are two types of tax: tax on purchases (VAT, stamp duty, alcohol/fuel duty etc) and tax on receipts (income tax, inheritance tax, capital gains tax etc). For most of us "income" is something we get paid for work we do in return. Most people need to put several hours, or do hard graft, in order to get an amount which barely covers their outgoings. Those who have earned (or are privileged enough to have been handed) a wedge of coin can let that wealth earn the income. Those people get paid a lot more for doing a lot less.

But with inheritance the recipient hasn't done anything to earn the money. I just think it's a bit tacky complaining about the tax payable (a rate set only only on the excess once a considerable threshold has been reached) on a freebie when many people aren't going to get anything at all. It's like The Parable of the Lucky Git.

I'd be grateful for what I have left in my hand rather than complaining about what had to go to HMRC. I suppose it just depends on the attitude of the recipient and how they regard freebies.

It is the argument I’m making. Any slightly clued up person would not have a £92k liability on their estate. The payment is discretionary for all but the uninformed or unlucky.
It is easy to be grateful when you aren’t receiving anything but some simple tax planning would have £92k extra in the family and can be used by the family.
It is just money chucked away.

 

[peachy]

IHT is easily avoided with some proper financial planning but it is examples like this with unexpected deaths and young dependants which sound unfair.

I have a friend whose parents once they retired, massively downsized their house (A big 4 bed detached near Guildford - worth a fortune - and moved to a doer-upper cottage in Yorkshire) which allowed them to give their children and grandchildren a big lump sum each - I think he got over £100,000 tax free. They were both healthy so the 7 year limit wasn't really a worry.

I don't think IHT should be totally scrapped but perhaps it needs a total review of how it works.

Two things that could be changed perhaps.

Where elderly siblings live together in a house worth say £525,000 ( no other assets to speak of). One dies. There is a £325,000 allowance but the IHT to pay is 40% of the £200,000 over their allowance, being £80,000. The estate might not be able to pay this without selling the house, rendering the surviving sibling homeless. This needs sorting even if it is just deferring the IHT to after the second death.


The other thing that could be sorted is the date the IHT has to be paid, iirc it has to be paid by 6 months. If a house forms part of the estate, but hasn't been sold at the six month mark, then IHT has to be paid from the estate, and this might be from funds which are not yet available. Surely IHT could be deferred till all monies are in.

IHT is paid by only a few estates, around 4%. You either don't pay it, pay to not pay it, or inherit a nice lump sum, knowing the treasury has benefitted. What is not to like.

 

[MGC]

Well it turns out it was was the latter so no issue but the inept Executor mistook the partial interest payment for a penalty and said it was a penalty which caused a brouhaha for a day or so until wiser heads prevailed.


The thing is that the incredibly wealthy families just tie it all up in trusts etc and don't pay a penny in tax. In London you're never going to find a decent property below the threshold so I know of instances where it means people are made homeless as a result. My friend Web drowned abroad and his son inherited but was just starting University and found himself either homeless or with a massive tax bill.

It’s scratterish not to expect a massive tax bill

 

[DisillusionedOldGit]

Well it turns out it was was the latter so no issue but the inept Executor mistook the partial interest payment for a penalty and said it was a penalty which caused a brouhaha for a day or so until wiser heads prevailed.


The thing is that the incredibly wealthy families just tie it all up in trusts etc and don't pay a penny in tax. In London you're never going to find a decent property below the threshold so I know of instances where it means people are made homeless as a result. My friend Web drowned abroad and his son inherited but was just starting University and found himself either homeless or with a massive tax bill.

Luckily houses up here are worth fuck all.

 

[42]

Sure, but that's a slightly different argument.

I just think in general terms there are two types of tax: tax on purchases (VAT, stamp duty, alcohol/fuel duty etc) and tax on receipts (income tax, inheritance tax, capital gains tax etc). For most of us "income" is something we get paid for work we do in return. Most people need to put several hours, or do hard graft, in order to get an amount which barely covers their outgoings. Those who have earned (or are privileged enough to have been handed) a wedge of coin can let that wealth earn the income. Those people get paid a lot more for doing a lot less.

But with inheritance the recipient hasn't done anything to earn the money. I just think it's a bit tacky complaining about the tax payable (a rate set only only on the excess once a considerable threshold has been reached) on a freebie when many people aren't going to get anything at all. It's like The Parable of the Lucky Git.

I'd be grateful for what I have left in my hand rather than complaining about what had to go to HMRC. I suppose it just depends on the attitude of the recipient and how they regard freebies.

There's possibly a psychological thing going on. Similar with normal income tax, whereby someone on PAYE doesn't mind paying it as it comes off at source & don't notice it as they've never had it. Whereas someone self employed who actually has to pay it over themselves is more likely to try & pay less.

In not entirely sure of how it works with inheritance tax, but does sound like it's the recipient having to pay the bill, after they've received it. So would it not be better for it to be just taken from the estate first before it's paid over?

 

[DisillusionedOldGit]

There's possibly a psychological thing going on. Similar with normal income tax, whereby someone on PAYE doesn't mind paying it as it comes off at source & don't notice it as they've never had it. Whereas someone self employed who actually has to pay it over themselves is more likely to try & pay less.

In not entirely sure of how it works with inheritance tax, but does sound like it's the recipient having to pay the bill, after they've received it. So would it not be better for it to be just taken from the estate first before it's paid over?

Not really because everyone's circumstances can differ .

 

[CatRyan]

Sure, but that's a slightly different argument.

I just think in general terms there are two types of tax: tax on purchases (VAT, stamp duty, alcohol/fuel duty etc) and tax on receipts (income tax, inheritance tax, capital gains tax etc). For most of us "income" is something we get paid for work we do in return. Most people need to put several hours, or do hard graft, in order to get an amount which barely covers their outgoings. Those who have earned (or are privileged enough to have been handed) a wedge of coin can let that wealth earn the income. Those people get paid a lot more for doing a lot less.

But with inheritance the recipient hasn't done anything to earn the money. I just think it's a bit tacky complaining about the tax payable (a rate set only only on the excess once a considerable threshold has been reached) on a freebie when many people aren't going to get anything at all. It's like The Parable of the Lucky Git.

I'd be grateful for what I have left in my hand rather than complaining about what had to go to HMRC. I suppose it just depends on the attitude of the recipient and how they regard freebies.

In principle I agree but I think there should be a caveat for London properties being inherited by youths who live there.

It’s scratterish not to expect a massive tax bill

I doubt an 18 year old about to go to university should have expected his healthy father to drown saving a young family that got into trouble in the sea, thus rendering him homeless.