T McGibney
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Your pension will be after-tax income by the time you get your hands on it.
Alan Shatter's campaign to abolish Inheritance Tax
- Thread starter Brendan Burgess
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He's doing it for income and to accumulate wealth. What if my child runs the business as a sole trader? Why shouldn't I be able to give my child my after tax income in exchange for a sandwich when I can give it to him tax free in exchange for nothing?
Buying a house to live in isn't taking a risk. If I start a business I take a risk, probably a much bigger risk, and I have to pay income tax on the wealth I take from that in the form of income, even if I use it to look after my children. Why should I or my children not pay tax on the gain if I sell the house I live in and give the money to my children?
True, but the gain was made with untaxed income. I'm not suggesting that this should change but the starting point for the discussion about inheritance tax is often "I worked hard all my live and earned my wealth and paid tax on it all. Why should my children have to pay tax on it again?" I'm pointing out that that's just nonsense since most wealth in this country is from capital appreciation in the form of PPR housing and pensions and so wasn't earned and taxes are levied on after tax income all the time.
Gordon Gekko
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The CAT thresholds don’t apply to pension funds. It’s all taxed at 30%. Arguably, the State should welcome gargantuan pension funds far greater than €2m.
T McGibney
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You keep ignoring inflation. As in fairness do most people. Counting let alone taxing a nominal gain on an asset bought 20 years ago is innumeracy.
I've agreed that indexation should be reintroduced but the thread topic is inheritance tax and the argument is based on the premise that we should be able to inherit wealth from our parents without paying any tax on it. I don't understand why that transfer of wealth should be treated any differently to any other transfer of wealth.
Some UK analysis.
ifs.org.uk
Bear in mind that the IHT in the UK is not exactly the same as CAT.
2. Exemption thresholds, which allow many couples to pass on up to £1 million tax-free, mean that the share of deaths resulting in inheritance tax is small, at around 4% in 2020–21, but a larger and growing proportion are potentially affected by the tax. The proportion of deaths resulting in inheritance tax is set to grow to over 7% by 2032–33. The number of people affected by inheritance tax will be still larger. By 2032–33, one in eight people (12%) will have inheritance tax due either on their death or their spouse or civil partner’s death.
3. Inheritance tax revenues are small, at £7 billion (or 0.3% of GDP) a year. However, we forecast that by 2032–33 they will rise to just over £15 billion in today’s prices (0.5% of GDP), driven by increasing levels of wealth held by subsequent generations of retirees. It is of growing importance that this tax is well designed.
4. The current cost of abolishing inheritance tax would be £7 billion. Around half (47%) of the benefit would go to those with estates of £2.1 million or more at death, who make up the top 1% of estates and would benefit from an average tax cut of around £1.1 million. The 90% or so of estates not paying inheritance tax would not be directly affected by such a reform.
5. There are several problems with the current design of inheritance taxation.Reliefs for agricultural and business assets and certain classes of shares, and the total exemption of pension pots from inheritance tax, open up channels to avoid the tax and are consequently costly and inequitable and distort economic decisions. The residence nil-rate band, which gives special treatment to property passed to direct descendants, raises similar types of problems and is of greater benefit to those in London and the South. There is a clear case for eliminating the special treatment of all of these types of assets.
6. Abolishing agricultural and business reliefs and bringing pension pots within the scope of inheritance tax could raise up to around £1½ billion a year. How much revenue would be raised is uncertain and depends on various factors including whether other channels are used to avoid inheritance tax. Making these changes together would reduce the scope for substituting one avoidance channel for another.
7. Four-fifths of the tax revenue from reform to business relief could be captured just by capping the relief at £500,000 per person, rather than outright abolition. Most business wealth is concentrated among those with high wealth, so the fiscal cost of an additional half a million pounds threshold for business wealth would be low, though the special treatment would remain unfair and distortionary. Around 90% of business wealth bequeathed is given as part of an estate worth over £2 million.
8. Removing the special treatment for residential property, by abolishing the residence nil-rate band (currently set at £175,000) and extending the nil-rate band from £325,000 to £500,000 would cost around £700 million a year and hold the proportion of deaths resulting in inheritance tax down at around 4%, while making the tax system fairer.
9. A reform that capped agricultural and business reliefs, brought pension pots within the scope of inheritance tax and abolished the residence nil-rate band could fund an increase in the nil-rate band to around £525,000 or a cut in the inheritance tax rate from 40% to around 25%.
10. Increasing the nil-rate band to hold the share of deaths resulting in inheritance tax down at its long-run average of 4% would require a nil-rate band of £380,000 and cost around £900 million a year. The cost of limiting the scope of the inheritance tax system in this way would grow over time, reaching £2.7 billion by 2032–33.
11. There are other changes to taxation at death that would improve efficiency and fairness, and raise revenue. Levying capital gains tax at the point of death would raise around £1.6 billion a year. Levying income tax on withdrawals from inherited pension pots regardless of the age at which the giver passed away would also raise further revenue.
12. Inheritance tax as currently designed has only a small impact on the distribution of inheritances received and therefore on intergenerational wealth mobility. The wealthiest fifth of donors will bequeath an average of around £380,000 per child, and pay inheritance tax of around 10% of this amount. By contrast, the least wealthy fifth of parents will leave less than £2,000 per child. To have a larger impact on intergenerational mobility, inheritance tax would have to be substantially expanded in scope.
13. By the time inheritances are received, wealth inequality is already substantial. Inheritances are most often received when people are in their late 50s or early 60s. Around the ages of 50–54, children of the wealthiest fifth of parents have an average of £830,000 in wealth, while children of the least wealthy fifth have on average £180,000. While a reformed inheritance tax could do more to promote intergenerational mobility, big wealth inequalities by parental background already exist before inheritances are received.
Chapter:
Reforming inheritance tax | Institute for Fiscal Studies
We set out issues with the inheritance tax system and examine options for reform and the distributional impacts of reforming or abolishing the tax.
Bear in mind that the IHT in the UK is not exactly the same as CAT.
Key findings
1. Inherited wealth is growing – and set to continue to grow – compared with earned incomes, and it will have a growing impact on inequalities by parental background. While inheritances will remain small for those with the least wealthy fifth of parents, for those with the wealthiest fifth of parents they are set to rise from averaging 17% of lifetime income for those born in the 1960s, to averaging 30% of lifetime income for those born in the 1980s. If the annual flow of non-spousal inheritances next year was equally shared across those aged 25, this would imply each receiving around £120,000.2. Exemption thresholds, which allow many couples to pass on up to £1 million tax-free, mean that the share of deaths resulting in inheritance tax is small, at around 4% in 2020–21, but a larger and growing proportion are potentially affected by the tax. The proportion of deaths resulting in inheritance tax is set to grow to over 7% by 2032–33. The number of people affected by inheritance tax will be still larger. By 2032–33, one in eight people (12%) will have inheritance tax due either on their death or their spouse or civil partner’s death.
3. Inheritance tax revenues are small, at £7 billion (or 0.3% of GDP) a year. However, we forecast that by 2032–33 they will rise to just over £15 billion in today’s prices (0.5% of GDP), driven by increasing levels of wealth held by subsequent generations of retirees. It is of growing importance that this tax is well designed.
4. The current cost of abolishing inheritance tax would be £7 billion. Around half (47%) of the benefit would go to those with estates of £2.1 million or more at death, who make up the top 1% of estates and would benefit from an average tax cut of around £1.1 million. The 90% or so of estates not paying inheritance tax would not be directly affected by such a reform.
5. There are several problems with the current design of inheritance taxation.Reliefs for agricultural and business assets and certain classes of shares, and the total exemption of pension pots from inheritance tax, open up channels to avoid the tax and are consequently costly and inequitable and distort economic decisions. The residence nil-rate band, which gives special treatment to property passed to direct descendants, raises similar types of problems and is of greater benefit to those in London and the South. There is a clear case for eliminating the special treatment of all of these types of assets.
6. Abolishing agricultural and business reliefs and bringing pension pots within the scope of inheritance tax could raise up to around £1½ billion a year. How much revenue would be raised is uncertain and depends on various factors including whether other channels are used to avoid inheritance tax. Making these changes together would reduce the scope for substituting one avoidance channel for another.
7. Four-fifths of the tax revenue from reform to business relief could be captured just by capping the relief at £500,000 per person, rather than outright abolition. Most business wealth is concentrated among those with high wealth, so the fiscal cost of an additional half a million pounds threshold for business wealth would be low, though the special treatment would remain unfair and distortionary. Around 90% of business wealth bequeathed is given as part of an estate worth over £2 million.
8. Removing the special treatment for residential property, by abolishing the residence nil-rate band (currently set at £175,000) and extending the nil-rate band from £325,000 to £500,000 would cost around £700 million a year and hold the proportion of deaths resulting in inheritance tax down at around 4%, while making the tax system fairer.
9. A reform that capped agricultural and business reliefs, brought pension pots within the scope of inheritance tax and abolished the residence nil-rate band could fund an increase in the nil-rate band to around £525,000 or a cut in the inheritance tax rate from 40% to around 25%.
10. Increasing the nil-rate band to hold the share of deaths resulting in inheritance tax down at its long-run average of 4% would require a nil-rate band of £380,000 and cost around £900 million a year. The cost of limiting the scope of the inheritance tax system in this way would grow over time, reaching £2.7 billion by 2032–33.
11. There are other changes to taxation at death that would improve efficiency and fairness, and raise revenue. Levying capital gains tax at the point of death would raise around £1.6 billion a year. Levying income tax on withdrawals from inherited pension pots regardless of the age at which the giver passed away would also raise further revenue.
12. Inheritance tax as currently designed has only a small impact on the distribution of inheritances received and therefore on intergenerational wealth mobility. The wealthiest fifth of donors will bequeath an average of around £380,000 per child, and pay inheritance tax of around 10% of this amount. By contrast, the least wealthy fifth of parents will leave less than £2,000 per child. To have a larger impact on intergenerational mobility, inheritance tax would have to be substantially expanded in scope.
13. By the time inheritances are received, wealth inequality is already substantial. Inheritances are most often received when people are in their late 50s or early 60s. Around the ages of 50–54, children of the wealthiest fifth of parents have an average of £830,000 in wealth, while children of the least wealthy fifth have on average £180,000. While a reformed inheritance tax could do more to promote intergenerational mobility, big wealth inequalities by parental background already exist before inheritances are received.
Chapter:
That's a really extreme proposal - in a few generations most land/small businesses etc would become state owned.
People would avoid selling land/businesses to try and avoid their new generation debt to the government. Each generation would own a smaller % of the asset and have less and less incentive to maintain/improve it etc. It actually sounds like a form of communism and would likely have the same results.
Dr Strangelove
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It’s poor policy though.
Family businesses founded decades ago are generally the least productive and least likely to add jobs.
I’d prefer to tax start-ups less. These are far more likely to export, employ a lot of people, and eventually pay lots of tax.
T McGibney
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Get rid of them and then we'll see how productive they were, and how many they employed.
Most genuine startups employ nobody except their promoters. Their attrition rate is very high,
Dr Strangelove
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CSO data is pretty unambiguous about how low their productivity, profitability, and wage levels are. I will encourage my kids never to work for a small, Irish-owned company.
Exactly, but a tiny fraction become immensely profitable and eventually employ tens of thousands of people in a way that a hardware shop on a main street absolutely never will.
T McGibney
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They probably will at some stage of their career.
How many indigenous Irish firms started up in the past 30 years now employ tens of thousands here?
I'd be surprised if that figure is greater than zero.
I don't understand that point.
How can they abolish the nil rate band and increase the nil rate band to £525k?
They tend to employ low skilled people and be more labour intensive.
It's remarkable how many Irish people ask business owners how many people they employ as if that's a good barometer of how big or successful their business is. I know competitors of mine who employ 50% more people but turn over half as much so yes, indigenous SME's tend to be more inefficient and lack the management structure to scale the business but they also employ most of the workforce and are a very diverse group.
In my experience, and I've lots of experience with start-ups, they tend to be set up to be sold to a multinational.
Edit: I'm referring to tech type start-ups. Every food wagon, coffee shop, clothing alterations business, self employed tradesperson etc is also a start-up at some stage.
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Silversurfer
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Yes you are correct. We should tax all benefits given at 0%. I consider social housing a very considerable windfall.
Brendan Burgess
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So does everyone agree that the taxation of the following inheritances is fair.
My dad died and left me a business worth €2,335,000 . I got 90% Business Relief so was treated as receiving a gift of €233,500. As this was less than the €335,000 Group A limit, I paid no CAT.
He left my brother an investment property worth €1,335,000. the first €335,000 was exempt. So he paid CAT of €330,000 on the taxable figure of €1m.
He left my sister the family home which was worth €2,335,000. The first €335,000 was exempt, so she had an immediate liability for €660,000 CAT.
She was unable to get a mortgage for this amount, so had to sell the family home. This left her with €1,675,000 to buy herself a home.
Or in table form
My dad died and left me a business worth €2,335,000 . I got 90% Business Relief so was treated as receiving a gift of €233,500. As this was less than the €335,000 Group A limit, I paid no CAT.
He left my brother an investment property worth €1,335,000. the first €335,000 was exempt. So he paid CAT of €330,000 on the taxable figure of €1m.
He left my sister the family home which was worth €2,335,000. The first €335,000 was exempt, so she had an immediate liability for €660,000 CAT.
She was unable to get a mortgage for this amount, so had to sell the family home. This left her with €1,675,000 to buy herself a home.
Or in table form
The Horseman
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Personally I don't agree. Firstly I think the thresholds are to low and secondly why can't a threshold be yours to use as you see fit? What if you have no children?
As long as it's a qualifying business and you retain ownership for a minimum of 6 years after inheriting the business. I thought there used to be aa requirement that the child had to work in the business for a certain amount of time before inheriting it but I must have been mistaken.
They all ended up with a nice few bob. The sister still has enough money left to buy a very nice home and fund a good pension. She'll have had to earn €60,000 a year and saved everything she took home for 40 years to accumulate that sort of money.
Not forgetting VAT on many things we buy
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