Financial literacy

[Londonlisa2001]

This week is likely to see a cut in the rate of inheritance tax.

It reminds me that one of the issues which most needs addressing in education is the lack of financial literacy.

People simply don't understand how taxation works, how interest works, how budgeting works, how public finances work etc etc.

It means that people can so easily be conned into believing stuff that simply isn’t true.

The debate about inheritance tax is full of people pontificating with zero idea about what it is and how it is structured.

It affects around 4% of U.K. households. A reduction in the rate is a benefit to the wealthiest families in the country. By definition it will come at a cost to those who are not the wealthiest families in the country.
It is one of the few remotely progressive taxes we have. A tax which to a tiny extent prevents the generational accumulation of wealth at the expense of the less well off.

A reduction in the rate at this time, when so many are struggling, would be an obscenity. Particularly if paid for by any reduction in benefits to the struggling.

Anyone who cheers this on needs their head looked at.

I’d be genuinely interested to hear the views of anyone on here supporting this.

 

[exiledclaseboy]

It’s the myth that inheritance tax punishes those hard working types who scrimped and saved to put food on the table and provide a nest egg to leave to their kids that’s leading the government to but the rate. People are idiots.

 

[Londonlisa2001]

It’s the myth that inheritance tax punishes those hard working types who scrimped and saved to put food on the table and provide a nest egg to leave to their kids that’s leading the government to but the rate. People are idiots.

Yep.

And there’s an obvious need for education around all this stuff.

One of the biggest myths is that it is taxing stuff that’s previously been taxed. Almost all of it is property related. And increases in the value of your house are not taxed. This is the only time it is. And only on joint estates in excess of £1m. And only on the amount above £1m. And only if you haven’t gifted it in your lifetime and lived another 7 years.
It is absolutely ridiculous.

 

[monmouth]

No argument from me. Another part of financial education should explain the effect of freezing allowances. Obscene is the right word.

Repellent.

 

[MajorR]

Over the last few weeks I’ve been visiting a food bank to assist several of their “customers.” I had no idea as to the amount of good work that goes on at the food bank to support people, this includes financial planning. It’s clear some people have no idea when it comes to things like money and financial planing. In my opinion, financial planning and “home economics” or meal preparation or whatever you want to call it should defo be taught in school and from an early age.

 

[rockinj]

I do agree with a lot of what you say Lisa.

To play Devils advocate in this. I’ll try to look at this from the point of view of those that hate the tax. The argument for either increasing threshold or scrapping the tax has is largely centred around the feeling of an injustice and the sense the State is intervening even after death.

It’s more an ideological issue with the belief the State has no place in taking money at that stage after years of paying into the system.

The other argument is that the tax is not paid by the very very rich as they can avoid through all sorts of clever accounting methods eg limited companies/trusts etc

There is also the issue of many of parts of the country the house prices have sky rocketed increasing the tax trap. Similar to fiscal drag impacting nearly everyone.

I personally feel that the taxation system should shift towards lower taxation for genuine graft eg 40% tax is now paid by a lot of people that should be raised higher. I think there’s an argument for a level of wealth redistribution away from asset wealth as that is the reason we continue to have a system rigged.

 

[Cooperman]

You answered your own point, Lisa. Folk will welcome this news with open arms because they don’t understand how it works, rather than them celebrating a genuine reduction in tax burden (after from the 4% of households of course).

This is where we require the opposition to step up and lay out the true facts and challenge how this cut would be funded.

 

[Cooperman]

Over the last few weeks I’ve been visiting a food bank to assist several of their “customers.” I had no idea as to the amount of good work that goes on at the food bank to support people, this includes financial planning. It’s clear some people have no idea when it comes to things like money and financial planing. In my opinion, financial planning and “home economics” or meal preparation or whatever you want to call it should defo be taught in school and from an early age.

I heard a stat mentioned on the radio the other day. It stated that the average household throws away £50 of food each month. I find that quite incredible. I’d say that we would be single digit figures; Thursday night cooking in our house is like an episode of Ready Steady Cook, in an effort to knock something up out of a random onion, pepper, chicken breast, etc.

 

[Pentyrchjack]

Beg to differ. The majority of super rich avoid paying any tax let alone inheritance tax through tax avoidance schemes. So the proposed reduction in inheritance tax doesn’t’make a fig’s difference.

Given that the tax system should be universal, you could argue that it is fair and proportionate for inheritance tax to apply to all inheritance and that it should not just start at the minimum £325,000 threshold. Or you could argue it shouldn’t apply at all until a much higher threshold of say £1m.

It is a tax that penalises the beneficiaries not the deceased and, in many cases, I know of children of deceased who have been forced out of modest family homes because they couldn’t pay the inheritance tax.

I know this won’t meet with your left of left “let’s make everyone equal by making everyone poor” philosophy, but you did ask for feedback!

This week is likely to see a cut in the rate of inheritance tax.

It reminds me that one of the issues which most needs addressing in education is the lack of financial literacy.

People simply don't understand how taxation works, how interest works, how budgeting works, how public finances work etc etc.

It means that people can so easily be conned into believing stuff that simply isn’t true.

The debate about inheritance tax is full of people pontificating with zero idea about what it is and how it is structured.

It affects around 4% of U.K. households. A reduction in the rate is a benefit to the wealthiest families in the country. By definition it will come at a cost to those who are not the wealthiest families in the country.
It is one of the few remotely progressive taxes we have. A tax which to a tiny extent prevents the generational accumulation of wealth at the expense of the less well off.

A reduction in the rate at this time, when so many are struggling, would be an obscenity. Particularly if paid for by any reduction in benefits to the struggling.

Anyone who cheers this on needs their head looked at.

I’d be genuinely interested to hear the views of anyone on here supporting this.

 

[Robbie]

Another view of taxation , from my own Personai Experience , and probably many others .

Lucky enough to have a good Private Pension scheme , worked 45 + years to earn it too .
Reached the retirement age this year , entitled to State Pension now , great .

As I still work semi retired have now had my personal allowance slashed due to my State Pension being included .
Some of us want to work for various reasons , I do , though , my allowance is now so not worth the effort of doing my job .

Calculations look like I can earn £60 per week before HMRC get their claws in to my hard earned , I ask myself why .

 

[Londonlisa2001]

No argument from me. Another part of financial education should explain the effect of freezing allowances. Obscene is the right word.

Repellent.

Yes, the freezing of allowances is another area where it’s not understood and is frequently glossed over by the press.

It has, of course, a disproportionate effect on people earning less hence why this government love it.

 

[Londonlisa2001]

Beg to differ. The majority of super rich avoid paying any tax let alone inheritance tax through tax avoidance schemes. So the proposed reduction in inheritance tax doesn’t’make a fig’s difference.

Given that the tax system should be universal, you could argue that it is fair and proportionate for inheritance tax to apply to all inheritance and that it should not just start at the minimum £325,000 threshold. Or you could argue it shouldn’t apply at all until a much higher threshold of say £1m.

It is a tax that penalises the beneficiaries not the deceased and, in many cases, I know of children of deceased who have been forced out of modest family homes because they couldn’t pay the inheritance tax.

I know this won’t meet with your left of left “let’s make everyone equal by making everyone poor” philosophy, but you did ask for feedback!

I don’t believe tax should be universal. It should be progressive. A universal taxation is deeply unfair to those who have less. Given that the necessities of life are universal - you don’t need more heat or food or clothing the richer you are (you may want or have more but you don’t NEED more). And taxation on heat and food and clothes are the same whatever you earn (as VAT is not a progressive tax). So poorer people pay a greater proportion of their income on taxation of necessity than richer people do. Progressive taxation of other taxes, such as income tax or inheritance tax goes a little way towards evening out that unbalance, or unfairness.

On IHT, the ‘much higher threshold’ you mention of £1m is effectively the rate at which it starts if (a) there is a property involved and (b) you leave your estate to children or grandchildren and have lived in the family house with your spouse or civil partner.

All tax that you pay ultimately affects the beneficiaries rather than the deceased doesn’t it? If you paid less income tax you’d leave more money all else being equal. So that’s not a valid argument - it’s the estate that’s taxed not the beneficiary anyway. Same as your debts die with you as well, so swings and roundabouts…

It’s possible you do know children that have been forced out of ‘modest family homes’, but given you only start paying at £1m (in other words, an inheritance of £1.1m would only see tax charged on £100k not on the whole lot), and the average house in the UK is worth £290k it would be unusual. Even if there was one parent (in other words divorce had happened before the death of either of them) the allowance is £500k so again that almost double the U.K. average.

The thought by the way of me being fiscally ‘left of left’ will amuse many on here (Clasey for a start).

 

[Londonlisa2001]

Another view of taxation , from my own Personai Experience , and probably many others .

Lucky enough to have a good Private Pension scheme , worked 45 + years to earn it too .
Reached the retirement age this year , entitled to State Pension now , great .

As I still work semi retired have now had my personal allowance slashed due to my State Pension being included .
Some of us want to work for various reasons , I do , though , my allowance is now so not worth the effort of doing my job .

Calculations look like I can earn £60 per week before HMRC get their claws in to my hard earned , I ask myself why .

What you mean is not that your personal allowance is slashed but that state pension is taxable income surely? Which it is. Not sure why it shouldn’t be? If you mean they adjust your tax code so it looks like you get a lower allowance that’s true - but it’s because your state pension is paid gross (they don’t deduct tax) so it’s just a way of getting the tax element of that back. Your personal allowance is the same as everyone else’s. It’s an admin thing.

You do, of course, pay no national insurance now on your earned income. So you get quite a lot of relief back that way. Plus your state pension is triple locked so you’ve had quite the benefit that way as well.

On a wider note, HMRC ‘get their claws into your income’ so that you can receive treatment from the NHS without paying for it, your kids or grandkids can go to school without paying for it etc etc etc.?

 

[jack_lord]

Beg to differ. The majority of super rich avoid paying any tax let alone inheritance tax through tax avoidance schemes. So the proposed reduction in inheritance tax doesn’t’make a fig’s difference.

Given that the tax system should be universal, you could argue that it is fair and proportionate for inheritance tax to apply to all inheritance and that it should not just start at the minimum £325,000 threshold. Or you could argue it shouldn’t apply at all until a much higher threshold of say £1m.

It is a tax that penalises the beneficiaries not the deceased and, in many cases, I know of children of deceased who have been forced out of modest family homes because they couldn’t pay the inheritance tax.

I know this won’t meet with your left of left “let’s make everyone equal by making everyone poor” philosophy, but you did ask for feedback!

I don't think there is a single financial person/accountant who is left of left.

 

[Squarebear]

My wife has set up a trust to avoid IHT. She'd be bemused at being described as super rich (she's a teacher).