Cut inheritance tax, I'll pay more tax so some kids can get a free house

[Berberis]

It would be very difficult though - how on earth would we know what the capital gain on our property might be 10 - 20 years hence?

 

And how many people really want to retain the property rather than selling it for ££££.

 

You have already pointed out the gain in your earlier post.

 

That's £381,000 unearned income - more than he earned in 40 odd years work. Of course it should be taxed.

[Berberis]

No - it might be worth £300k unmaintained now rather than £400k - but nowhere near the original £19k - and it would still represent a huge amount of unearned income.

 

If the house had not been maintained for 40 years, that would include heating and cleaning. Over 40 years the house would be little more than a wreck and require total demolition before being rebuilt. The eventual value be closer to the land cost rather than the buildings value.

[Longcol]

If the house had not been maintained for 40 years, that would include heating and cleaning. Over 40 years the house would be little more than a wreck and require total demolition before being rebuilt. The eventual value be closer to the land cost rather than the buildings value.

 

Yes but let's deal with the real world shall we - whatever they'd lived in - owned or rented - they still have had to pay running costs like heat and light - the capital gain is undiminished by these.

[Longcol]

You have already pointed out the gain in your earlier post.

 

So how would capital gains tax work instead of inheritance tax then?

[Berberis]

Yes but let's deal with the real world shall we - whatever they'd lived in - owned or rented - they still have had to pay running costs like heat and light - the capital gain is undiminished by these.

 

But you are undervaluing your dad’s contribution to the property and short changing him. The rule of thumb is to compare what it would cost to pay someone to do what your father already does over the period to maintain the property.

Edited December 13, 2009 by Berberis

[Berberis]

So how would capital gains tax work instead of inheritance tax then?

 

Capital gains tax is 18% of the gain in value. This would mean no double jeopardy on tax. The money you have already paid income tax on is not then re-taxed when your estate is inherited by your children.

[carosio]

He bought it during the period endowments actually more than covered the cost of your mortgage. maintenance hardly adds to capital value - just helps keep value - as do the majority of improvements (unless siginificant extensions to the size of the house).

 

If you are saying he would be paying £30k on a £381k unearned profit I honestly can't think that is unreasonable.

 

Most of our parents generation where looking towards leaving us a little something to remember them by - not a small fortune - I reckon many people are seeing the value of their parents property and seeing ££££ in front of their eyes.

 

If you inherited then it would be £400k less exemption (£325k) which would leave tax due at 40% of £75k which is £30k. So, if you were living in the house with your parents at the time, you would have this to pay and perhaps sell the home to do so. (I am no expert, this is my understanding of it).

 

Edit: with capital gains, you can also acquire a "loss" each year so that if the house fell in value for a tax year, this loss could be carried forward indefinately. Also, any expenses incurred that are "exclusive and necessary" for the upkeep of the asset can be allowed against the sum realised at disposal.

Edited December 13, 2009 by carosio

[MonkeyLover]

Just give your house to your kids at least 7 years before you die and hey presto- you avoid it compleatly!!!

 

That's ok if you know when you gonna die! Knowing my luck, i would give mine to my kids, then live on till im about 120, and be scrimping and skint for the rest of my miserable life!

[Longcol]

But you are undervaluing your dad’s contribution to the property and short changing him. The rule of thumb is to compare what it would cost to pay someone to do what your father already does over the period to maintain the property.

 

Don't think so - whoever owned the property would have had to pay heating. Heating bills are surely to keep the inhabitants of a property warm - not a direct property maintenance cost.

[Longcol]

Capital gains tax is 18% of the gain in value. This would mean no double jeopardy on tax. The money you have already paid income tax on is not then re-taxed when your estate is inherited by your children.

 

But how could we do this over a fairly long period like you proposed - the capital gain is surely an unknown - when the property is sold we've got a price that is fixed.

 

Can you explain the double taxation proposal please? My dad paid income tax (and NI) on his earnings. Because of house price inflation he is due for a rather massive unearned "windfall" profit - he is taxed on income he gets from shares - also unearned. What is the difference?