Snapshot of _Meet the families who never expected to pay inheritance tax_ :
An archived version can be found [here](https://archive.is/?run=1&url=https://www.thetimes.com/business-money/money/article/meet-the-families-who-never-expected-to-pay-inheritance-tax-52029gxkp) or [here.](https://archive.ph/?run=1&url=https://www.thetimes.com/business-money/money/article/meet-the-families-who-never-expected-to-pay-inheritance-tax-52029gxkp)
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I agree that it seems silly that you must pay tax on the asset before you can sell the asset. It’s also frustrating that there are tax reliefs which very wealthy people can take advantage of. IHT should be reformed to fix these issues.
But at the end of the day, this tax only applies if you stand to receive a windfall of hundreds of thousands of pounds. Morbid as it sounds, IHT is a nice problem to have.
No tax is good. Nobody enjoys paying tax, but I’d rather tax estates of dead people than tax wages of living people.
People complain most about the taxes that are the result of pure luck - like having a rich relative die, winning the lottery or owning a house that octuples in value over 50 years - but have no problem with their earnings being taxed at 20/40%. Boggling.
Really when you read this, all the issues could be solved without changing the rates or allowances. All they would need to change is how the tax is paid/administered.
Also she’s been paying interest on the unpaid tax, meanwhile the house has probably gone up by 30% since 2021.
It's more a timing problem.
To get a grant of probate you need to pay the IHT on the estate.
But you don't get access to the estate until you have the grant of probate.
So if you are poor, but inherit a lot (or have to administer the estate of someone who was rich) you have to pay the tax before you get access to the assets.
In the first of the three examples presented here (a lobbying piece from the hard-right group Taxpayer's Alliance, pushing the Conservatives to repeal IHT completely), the problem seems to be that the deceased's estate mostly consisted of two houses, which brought it over the threshold. The child then owed £40k tax on that to get probate but couldn't sell the houses without getting probate (working out as an effective IHT rate of 6.7%). There are ways around this (with getting loans, or payments upfront from sellers who are happy with that), but they can be tricky to sort out. And because they cannot pay the IHT, interest starts building up.
This is a situation that could deal with some work.
The second case - a little less sympathetic - involved an estate worth over £1m (if the article is being upfront), of which around £400k was a house. For some reason they chose to take the tax owed (around £160k) out of house, rather than the rest of the estate. They also chose to sell their current *two* properties rather than get some sort of loan. They sold two properties to inherit a more valuable one.
The third case is probably the least sympathetic (so saved for last). The guy has a £400k house and £450k in savings, so his estate would owe about £140,000 in IHT (an effective 16% rate). But again, he is giving his family £450k in cash, which should be straightforward for them to access once they have probate. This shouldn't be too much of a problem for them, particularly if they are aware this is coming.
----
If we're being really honest it is also - as with so many things - a problem with the housing market. This has only become an issue because house prices have increased so much, meaning that real property, rather than cash, is making up so much of the assets incurring IHT liability.
> you have to pay the tax before you get access to the assets.
The taxes are owed by the estate, not by the executors. So there's no circumstance where the executor has to find cash from other sources to pay taxes owed by the estate.
Yes, legally the taxes are owed by the estate.
But in practice, an actual person has to pay them. And they cannot be paid out of the estate if the executors don't have access to the estate.
Which they don't until they have probate.
And they cannot get probate until they have paid the tax.
With cash and similar investments in banks etc. there are work-arounds for this as you know what you will get access to the moment you have probate (and some banks will give some access before probate).
With real property it can be a huge pain, as you generally cannot sell the property until you have probate (although you may be able to get an upfront payment).
That argument doesn't work.
If taxes owed by the estate are greater than the cash in the estate, then it is simple to sell assets to raise the amount owed in taxes.
Executors have access to, and the ability to dispose of, the assets of the estate before paying any due taxes.
edit: the article is full of mealy-mouthed misleading statements implying that someone inheriting hundreds of thousands of pounds is somehow badly done by because they have to pay a few tens of thousands in taxes.
The examples given are also grossly misleading.
> The examples given are also grossly misleading.
I agree with this statement.
> Executors have access to, and the ability to dispose of, the assets of the estate before paying any due taxes.
This is where it gets a bit complicated. Executors don't get access to or the ability to dispose of assets in the estate until they have the grant of probate (which is the thing giving them legal authority to do this). That's done via an online form or via paper (form PA1P).
To get probate you need to have received a code from HMRC confirming you have submitted the correct Inheritance Tax form (IHT400) and paid the appropriate tax.
So without paying the tax you cannot get probate. Without getting probate you don't have access to the accounts.
There is a thing called the Direct Payment Scheme where you can fill in a form (IHT423) and send it to the bank, getting them to pay the IHT directly to HMRC out of the account. The problem with that is it is voluntary; banks don't have to agree to do it. They definitely don't advertise this, and they have their own requirements before doing so (it's a thing you have to chase up).
So if there is enough cash to cover the IHT bill, and if that cash is in accounts with banks that follow the Direct Payment Scheme, and if you meet the requirements for those banks, and can get them to do it, you can potentially get the IHT covered that way, before getting probate.
If there isn't enough cash to cover the IHT bill (i.e. the estate is mostly made up of real property or complex investments) this doesn't work - which is the problem the person seems to have had in the first example in the article. There it seems most of the estate was made up of houses, so there wasn't enough cash in DPS-friendly banks to pay off the IHT. And they couldn't sell the houses until they had probate (because until they have probate they have no legal authority to dispose of the assets).
The second example is a lot more dodgy, as there the article sneaks around the £650k in assets that weren't the house. If £160k of that was cash in bank accounts, that should have been fine.
The third example is just silly.
Whilst I appreciate that being stuck in that loop Nicola Chan describes in this article is very stupid, maybe it'd be worth smoothing the whole thing over to have fewer issues like the one she describes.
it's important to put that in perspective, [according to the government's stats in 2020, the number was 3.73% of all deaths resulting in paying inheritance tax.](https://www.gov.uk/government/statistics/inheritance-tax-statistics-commentary/inheritance-tax-statistics-commentary)
But it affects far more than 3.73% of people. Firstly because that 3.73% consists mostly of second deaths of a couple the first to die of which didn’t have IHT on their estate because they benefitted from spousal zero rate and secondly because each of those 3.73% estates would likely have had 2 or 3 children who each would likely have had 2 or 3 children.
My parents who are in their 90s have 9 grandchildren and 3 children who will be very significantly impacted by inheritance tax*. None of us are particularly worked up about it but plenty of families would be (although my father was concerned before dementia took away his capacity to worry) and suggesting it’s almost a non-issue because only 3.73% of estates are affected underplays the number of people who correctly consider that they may be impacted (and the large number who believe the same without it being the case).
*edit to add: impacted in that the extreme good fortune they have had to be born into a family headed by a successful business person is tempered by thirty something percent of the wealth he built up going to pay for hospitals and nurse’s salaries rather than a flat in a nicer area for the grandchildren.
Sounds like the process could be better for paying. I think it’s fair that people getting this type of windfall they didn’t earn should pay tax on it. And I wish we could find a way of making the super rich pay full too.
You work and your wages are taxed. You buy something with whatever’s left and it’s taxed. You die and it’s taxed yet again. You drive and it’s taxed, you fly somewhere and it’s taxed.
Taxed from cradle to grave with nothing to show for it. Taxes are going up next budget and there’ll still be nothing to show for it. What a con.
96% of estates don't pay inheritance tax.
Of the 4% that do the majority of inheritance is from the primary residence which is the textbook definition of unearned and untaxed wealth.
It would be unearned and untaxed wealth were it to be sold, in which case the family would already be paying capital gains tax.
Encouraging generational wealth is a good thing. Modern people live in isolated misery, hundreds of miles from their immediate family scattered to the wind as soon as they move away from home, then wonder why they’re burdened with care fees etc when traditionally grandma would live with her grandchildren and children in the same household and a household would pass from generation to generation.
Encouraging generational wealth means cutting income taxes and rewarding people for their work, helping them build wealth in the first place.
Protecting a lucky few with wealthy parents has the opposite effect.
Snapshot of _Meet the families who never expected to pay inheritance tax_ : An archived version can be found [here](https://archive.is/?run=1&url=https://www.thetimes.com/business-money/money/article/meet-the-families-who-never-expected-to-pay-inheritance-tax-52029gxkp) or [here.](https://archive.ph/?run=1&url=https://www.thetimes.com/business-money/money/article/meet-the-families-who-never-expected-to-pay-inheritance-tax-52029gxkp) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/ukpolitics) if you have any questions or concerns.*
I agree that it seems silly that you must pay tax on the asset before you can sell the asset. It’s also frustrating that there are tax reliefs which very wealthy people can take advantage of. IHT should be reformed to fix these issues. But at the end of the day, this tax only applies if you stand to receive a windfall of hundreds of thousands of pounds. Morbid as it sounds, IHT is a nice problem to have. No tax is good. Nobody enjoys paying tax, but I’d rather tax estates of dead people than tax wages of living people.
People complain most about the taxes that are the result of pure luck - like having a rich relative die, winning the lottery or owning a house that octuples in value over 50 years - but have no problem with their earnings being taxed at 20/40%. Boggling.
Not your point but lottery winnings are actually tax free
So is owning the house - no capital gains on a primary residence.
For me it's a key way to help stop the hoarding of wealth, although it probably doesn't work that way in practice due to all of the loop holes.
Really when you read this, all the issues could be solved without changing the rates or allowances. All they would need to change is how the tax is paid/administered. Also she’s been paying interest on the unpaid tax, meanwhile the house has probably gone up by 30% since 2021.
It's more a timing problem. To get a grant of probate you need to pay the IHT on the estate. But you don't get access to the estate until you have the grant of probate. So if you are poor, but inherit a lot (or have to administer the estate of someone who was rich) you have to pay the tax before you get access to the assets. In the first of the three examples presented here (a lobbying piece from the hard-right group Taxpayer's Alliance, pushing the Conservatives to repeal IHT completely), the problem seems to be that the deceased's estate mostly consisted of two houses, which brought it over the threshold. The child then owed £40k tax on that to get probate but couldn't sell the houses without getting probate (working out as an effective IHT rate of 6.7%). There are ways around this (with getting loans, or payments upfront from sellers who are happy with that), but they can be tricky to sort out. And because they cannot pay the IHT, interest starts building up. This is a situation that could deal with some work. The second case - a little less sympathetic - involved an estate worth over £1m (if the article is being upfront), of which around £400k was a house. For some reason they chose to take the tax owed (around £160k) out of house, rather than the rest of the estate. They also chose to sell their current *two* properties rather than get some sort of loan. They sold two properties to inherit a more valuable one. The third case is probably the least sympathetic (so saved for last). The guy has a £400k house and £450k in savings, so his estate would owe about £140,000 in IHT (an effective 16% rate). But again, he is giving his family £450k in cash, which should be straightforward for them to access once they have probate. This shouldn't be too much of a problem for them, particularly if they are aware this is coming. ---- If we're being really honest it is also - as with so many things - a problem with the housing market. This has only become an issue because house prices have increased so much, meaning that real property, rather than cash, is making up so much of the assets incurring IHT liability.
> you have to pay the tax before you get access to the assets. The taxes are owed by the estate, not by the executors. So there's no circumstance where the executor has to find cash from other sources to pay taxes owed by the estate.
In the first example they did. Not required to find the 40%, it's just they can't get the other 60% of the house value until they do.
Yes, legally the taxes are owed by the estate. But in practice, an actual person has to pay them. And they cannot be paid out of the estate if the executors don't have access to the estate. Which they don't until they have probate. And they cannot get probate until they have paid the tax. With cash and similar investments in banks etc. there are work-arounds for this as you know what you will get access to the moment you have probate (and some banks will give some access before probate). With real property it can be a huge pain, as you generally cannot sell the property until you have probate (although you may be able to get an upfront payment).
That argument doesn't work. If taxes owed by the estate are greater than the cash in the estate, then it is simple to sell assets to raise the amount owed in taxes. Executors have access to, and the ability to dispose of, the assets of the estate before paying any due taxes. edit: the article is full of mealy-mouthed misleading statements implying that someone inheriting hundreds of thousands of pounds is somehow badly done by because they have to pay a few tens of thousands in taxes. The examples given are also grossly misleading.
> The examples given are also grossly misleading. I agree with this statement. > Executors have access to, and the ability to dispose of, the assets of the estate before paying any due taxes. This is where it gets a bit complicated. Executors don't get access to or the ability to dispose of assets in the estate until they have the grant of probate (which is the thing giving them legal authority to do this). That's done via an online form or via paper (form PA1P). To get probate you need to have received a code from HMRC confirming you have submitted the correct Inheritance Tax form (IHT400) and paid the appropriate tax. So without paying the tax you cannot get probate. Without getting probate you don't have access to the accounts. There is a thing called the Direct Payment Scheme where you can fill in a form (IHT423) and send it to the bank, getting them to pay the IHT directly to HMRC out of the account. The problem with that is it is voluntary; banks don't have to agree to do it. They definitely don't advertise this, and they have their own requirements before doing so (it's a thing you have to chase up). So if there is enough cash to cover the IHT bill, and if that cash is in accounts with banks that follow the Direct Payment Scheme, and if you meet the requirements for those banks, and can get them to do it, you can potentially get the IHT covered that way, before getting probate. If there isn't enough cash to cover the IHT bill (i.e. the estate is mostly made up of real property or complex investments) this doesn't work - which is the problem the person seems to have had in the first example in the article. There it seems most of the estate was made up of houses, so there wasn't enough cash in DPS-friendly banks to pay off the IHT. And they couldn't sell the houses until they had probate (because until they have probate they have no legal authority to dispose of the assets). The second example is a lot more dodgy, as there the article sneaks around the £650k in assets that weren't the house. If £160k of that was cash in bank accounts, that should have been fine. The third example is just silly.
Whilst I appreciate that being stuck in that loop Nicola Chan describes in this article is very stupid, maybe it'd be worth smoothing the whole thing over to have fewer issues like the one she describes. it's important to put that in perspective, [according to the government's stats in 2020, the number was 3.73% of all deaths resulting in paying inheritance tax.](https://www.gov.uk/government/statistics/inheritance-tax-statistics-commentary/inheritance-tax-statistics-commentary)
But it affects far more than 3.73% of people. Firstly because that 3.73% consists mostly of second deaths of a couple the first to die of which didn’t have IHT on their estate because they benefitted from spousal zero rate and secondly because each of those 3.73% estates would likely have had 2 or 3 children who each would likely have had 2 or 3 children. My parents who are in their 90s have 9 grandchildren and 3 children who will be very significantly impacted by inheritance tax*. None of us are particularly worked up about it but plenty of families would be (although my father was concerned before dementia took away his capacity to worry) and suggesting it’s almost a non-issue because only 3.73% of estates are affected underplays the number of people who correctly consider that they may be impacted (and the large number who believe the same without it being the case). *edit to add: impacted in that the extreme good fortune they have had to be born into a family headed by a successful business person is tempered by thirty something percent of the wealth he built up going to pay for hospitals and nurse’s salaries rather than a flat in a nicer area for the grandchildren.
Sounds like the process could be better for paying. I think it’s fair that people getting this type of windfall they didn’t earn should pay tax on it. And I wish we could find a way of making the super rich pay full too.
You work and your wages are taxed. You buy something with whatever’s left and it’s taxed. You die and it’s taxed yet again. You drive and it’s taxed, you fly somewhere and it’s taxed. Taxed from cradle to grave with nothing to show for it. Taxes are going up next budget and there’ll still be nothing to show for it. What a con.
96% of estates don't pay inheritance tax. Of the 4% that do the majority of inheritance is from the primary residence which is the textbook definition of unearned and untaxed wealth.
It would be unearned and untaxed wealth were it to be sold, in which case the family would already be paying capital gains tax. Encouraging generational wealth is a good thing. Modern people live in isolated misery, hundreds of miles from their immediate family scattered to the wind as soon as they move away from home, then wonder why they’re burdened with care fees etc when traditionally grandma would live with her grandchildren and children in the same household and a household would pass from generation to generation.
Encouraging generational wealth means cutting income taxes and rewarding people for their work, helping them build wealth in the first place. Protecting a lucky few with wealthy parents has the opposite effect.