Inheritance Tax

[eFestivals]

This money isn't given at random, it's given to those whose goods or services you consider to have value, and thus worthy of payment in return for them.

Not in the case of inheritances (or gifting), it's not.

That's my whole bleeding point.

You did indeed specify that gift limit, and I responded to it with this. Do you also ban seed capital investments?

Nope.

If RichMan makes the investment, it's his investment.

If RichMan gifts money to IdleKid who then makes the investment, it's IdleKid's investment.

If shares are gifted by RichMan to IdleKid, then the shares are independently valued.

The gifting has to be within the rules, of course.

IdleKid either then succeeds or fails on their own merit (and so perhaps stops being IdleKid).

It's quite simple.

It's not the accumulation of money by hard work by an individual that is the problem being addressed, it's the transfer of funds on the basis of no merit.

Alternatively, someone puts their money into a trust that'll give someone £50k a year. They can either turn that down, pay 100% tax and continue working hard for the rest of their life, or they can bugger off to Spain, and sun themselves on a beach for the rest of their life with it. I assume they're spending that £50k a year, not just sitting on it, so they support the local Spanish economy by buying their goods there. Spain are unlikely to have a problem with that, they're not a burden on them, they're supporting their economy, and England, instead of getting the money from my spending, instead ends up with zilch.

Not quite correct.

It ends up with one less robber, and that's worth a fair bit.

RE your distribution point, I've already addressed that, the vast majority of money is redistributed, with or without tax.

the money might be distributed, but the owner stays (essentially) the same - the same family, who get and keep their wealth on no merit.

It's the ownership that also gets distributed, giving everyone an equal chance at becoming the owner. Opportunities get distributed, rather than not-distributed.

Finally, on the last point, most people giving money to their children want to protect it, and don't like the fact that they're being taxed again on money they've already earned.

and yet the same people seem to think VAT is the best tax going, which proves the lie of that claim.

It's not the "double tax" that offends them, it's the fact that they don't get to gift their children privileges over other children.

As a result, a far higher % of IHT gets avoided than income tax.

nothing to do with the much greater amounts involved of course, nor the fact that inheritance taxes have deliberately been created in a way that makes them easy to avoid - tax rules written by the rich to benefit the rich, and not to benefit 'the people' or society.

You're basically saying that because people rob they should be given free-reign to rob.

OK, fine - but it's not only tax that gets 'robbed' from people. RichMan also gets robbed by PoorMan when the rules are written to be fair, and not to protect the rich but not the poor.

And you do want 'fair', don't you? Or is it that you only want 'fair to me'?

In addition, even from a non-tax perspective, it makes sense to put your money into a trust.

well of course it does.

If you're so rich as to have those sorts of amounts, you certainly want the rules written that guarantee you keep those amounts.

But a trust, if it didn't legally class as money of the dead and so be taxed into non-existence, would be gifting more than £50k in a lifetime, and so shut down and seized as a criminal conspiracy.

Edited July 10, 2014 by eFestivals

[feral chile]

With regard to the laws, in theory, the collective decided on the law, though in practice, those who have property have power, historically they must have seized or claimed the property for themselves at some stage, when it was still free to be taken (no property law/concept of rights of ownership). Then, laws were created to prevent the exact same thing happening to them as they had done.

The question of bad luck - this is such a complex question. If you have skills that society doesn't value, or values in a non-monetary sense, is that bad luck, or personal choice not to pursue a more lucrative career?

People are born with a level of intelligence and ability, into a particular social background and mindset - it's quite difficult to climb out of that.

I often wonder how many gifted people go unattended, because they didn't get the education they needed to flourish, or because they lacked the social standing to be heard. It's as much bad luck to society as to them.

Edited July 10, 2014 by feral chile

[eFestivals]

With regard to the laws, in theory, the collective decided on the law, though in practice, those who have property have power, historically they must have seized or claimed the property for themselves at some stage, when it was still free to be taken (no property law/concept of rights of ownership). Then, laws were created to prevent the exact same thing happening to them as they had done.

spot on.

Including the very laws of inheritance taxes, that they're very strangely so very good at avoiding. Funny that, eh?

Anyone might think they'd designed it that way, and perhaps shutting down all the loopholes isn't actually the impossible thing you keep trying to tell me it is.

Perhaps if tax laws weren't written by vested interests, they might all be a bit fairer, eh, instead of designed for the benefit of the rich?

I often wonder how many gifted people go unattended, because they didn't get the education they needed to flourish, or because they lacked the social standing to be heard. It's as much bad luck to society as to them.

Do you know how many it is?

It's a greater number than if large inheritances were to be outlawed, because that opens up new opportunities to be attained via hard work when previously they were reserved within a few families (which by nature would result in lower average attainment).

[kaosmark2]

Although, I'm oversimplifying here, you'd require a war-and-peace size book to even begin to get down into why inequality exists, and it's not particularly relevant to the discussion to the matter of inheritance tax.

Inheritance is why the same families that were wealthy in feudal times are wealthy now. It's at the very core of why inequality exists. To suggest otherwise is either trying to mask the issue by overcomplicating it, or is being mind-numbingly stupid. Sure, there are successful people who break into the traditional monopoly that dates back to feudal times, but the proportion of wealth that is held by those families is still similar, despite the much greater amount of total wealth and the much greater population to spread it between.

[eoJ]

Neil: First point, yep, agreed (although how you define worthiness is what we're examining, in part), although that wasn't aimed at you, it was in response to a separate point.

Seed capital:

But the thing with seed capital is it's disproportionate to the merit offered. It's essentially investing in an idea (which is worth diddly-squat), and the fact that they will go on to make something of that idea. How is that so different to investing in the fact that they'll spend the money wisely?

Perhaps instead of coming to you prior to your death with an idea they weren't sure about, they instead chose to wait until they had one they were certain about. Surely someone with the common sense and decency to do that, instead of spending it on the first idea they come across, is more worthy?

And how about if a family member invested 600k in a business, you invested it in supplies, and within a month, it had sold 50k of goods, then someone came along and offered you £1m for it, based on the sales and the goods it owned (by which time, you've discovered this business is actually more trouble than it's worth, and that it makes more sense to pursue another venture)? How would that be different from a gift? Sure, you've put work in, but a proportion of the value is still based on that initial investment.

RE one less robber: 50k a year over 60 years is 3 million. You're stopping 3 million from being invested in the UK, at the expense of what? Tax revenues? You're robbing yourself by making them leave, surely?

Redistribution: That's a broad statement. The chain might go RichGuy -> Bank -> demutualised reverse swap triple somersault property fund -> Large real estate fund -> Smaller, but still large real estate holding company -> Property development company -> Large building firm -> Local building firm -> Builder -> Builder's cat -> Chinese tuna fishing boat. It depends how broadly you define the family, if you can define it as broadly as a large amount of the population of England, then sure. RE equality in regards to ownership, well, that's decided by market demand, and whether there's a lot of building going on (meaning that house prices could be getting pushed down) or a lot of fishing, or food packaging, whatever. If there's demand for something though, more people will want to go into that profession. If you want to become an artist, fine, if that's what you enjoy, but you can't then expect to earn the same amount as a profession there's a lot of demand, but low supply, for, obviously.

I don't think VAT's the best tax going, by any means. I think those that think that do so because they don't notice it, if they were able to get goods shipped to them in the same time from the US as from the UK, I think opinions would be different. IHT is overt, VAT is subtle.

%s of IHT avoided: I've given a few ways anyone can avoid tax if they so choose. Whether they can be bothered, and whether their time is a worthwhile investment to make that moral step, is another matter. When a lot more's at stake, obviously, you'll be more concerned, and there'll be more of an incentive. If you could snap your fingers and avoid tax, then that point would hold. I'm not saying it's ok to rob, merely that it's unfair to only punish robbers with blue eyes (and to bring back to the main point) to only tax sudden death.

Trust: As I said, not from a tax perspective. Even if you're well under the limit, at a tidy, but not set-for-life £40k, it would still make sense to have the money in a trust, to prevent it all being blown on coke and hookers within 2 years.

The 'avoiding' implication: There has to be a certain level of acceptance that the other party's telling the truth. I will tell you right now, I have no dependents, no will, and no fancy tax setup (several companies, of which 1 is currently in use - all UK LTD though). Both of my parents have been specifically advised by me to donate any money they're planning to give to me in their will, to charity, or preferably, to spend it and enjoy themselves. No other wills that I'm likely to be a significant beneficiary of. I have no horse in this race. I have an interest in tax avoidance works, but I tend to be interested in most things (my bookshelf at the moment, 1 or 2 books each: survival, advertising, economics, political philosophy, psychology, accountancy, business, computer programming).

Loopholes: we've already agreed for the purposes of this debate that we should consider that loopholes do exist, and will continue to for a long while.

I'll respond to FC next post, as I sense this is already getting a bit long. P.S. Neil, you have a misattributed quote there, you've put my name on something FC said. I was confused there, thought you'd really gone digging, thought it didn't sound like my tone of voice

Edited July 10, 2014 by eoJ

[eoJ]

FC:

Laws: true, the collective decided on the law (sort of, as you said), however, whether that collective is representative of the modern society (I'll never understand why laws designed for enforcing duelling rules are still in use today!) is another matter. Regardless, if the collective had a free vote back then, and what they said went, would they be giving more power to the government? Or less?

Bad luck: Yes, I agree, it's a ridiculously complex question, and it's a discussion that will likely never end if we go too far down that rabbit hole! I'd say it depends, most people have the ability to do something at least that would earn them more money than their chosen path (anyone who has the ability to write in passable English can easily earn $10 a page writing simple articles online), but they choose not to, for whatever reason.

Which is fine, it's their choice (to an extent - to pick an extreme example, if you have an IQ of 50, then writing articles probably isn't for you, however there's only so much we can do, and without variation, there's no evolution, and we all end up dying of the human equivalent of blight), I can't blame someone if they're skilled enough to do something really really dull and meaningless, but instead choose to become an artist.

I agree though, although I also think there's probably not a lot we can do about it (although we can attempt to make a difference - same could be said for many things though, unfortunately), as regrettable as that is.

EDIT: Oops, missed kaosmark.

Breaking my no-quoting streak here

Inheritance is why the same families that were wealthy in feudal times are wealthy now. It's at the very core of why inequality exists. To suggest otherwise is either trying to mask the issue by overcomplicating it, or is being mind-numbingly stupid. Sure, there are successful people who break into the traditional monopoly that dates back to feudal times, but the proportion of wealth that is held by those families is still similar, despite the much greater amount of total wealth and the much greater population to spread it between.

Is it a core reason inequality exists? Yes. Does everyone receive inheritance in some form (not necessarily in terms of money or fixed assets)? Yes. How do you stop it? That's what I'm asking, so I can try to find out, or at least get an idea.

To say that direct inheritance, in the form of money or assets, is the core reason inequality exists, no, it's not. If you look far back on my family tree, you have people who must've been the equivalent of multi-millionaires back in their day, and you have people who died with pretty much a loaf of bread to their name (if that). Go back a few hundred years, and your ancestors become so varied, that it's impossible to pinpoint.

Even more recently, there are plenty of Rothschilds, and other members of 'brand-name families' that are only lower-middle class, and that's relatively recent, only a few generations, along with the fact that your name carries a brand that will buy you respect.

However, even at 4 generations, each having 5 children (admittedly, higher than the current average, but less than many then, and the average may increase again), you end up with 625 direct descendants, plus a whopping amount of inlaws (and also, divorces and bankruptcies). How many generations would you say there are between modern day and feudal times?

Edited July 10, 2014 by eoJ

[kaosmark2]

Is it a core reason inequality exists? Yes. Does everyone receive inheritance in some form (not necessarily in terms of money or fixed assets)? Yes. How do you stop it? That's what I'm asking, so I can try to find out, or at least get an idea.

To say that direct inheritance, in the form of money or assets, is the core reason inequality exists, no, it's not. If you look far back on my family tree, you have people who must've been the equivalent of multi-millionaires back in their day, and you have people who died with pretty much a loaf of bread to their name (if that). Go back a few hundred years, and your ancestors become so varied, that it's impossible to pinpoint.

Even more recently, there are plenty of Rothschilds, and other members of 'brand-name families' that are only lower-middle class, and that's relatively recent, only a few generations, along with the fact that your name carries a brand that will buy you respect.

However, even at 4 generations, each having 5 children (admittedly, higher than the current average, but less than many then, and the average may increase again), you end up with 625 direct descendants, plus a whopping amount of inlaws (and also, divorces and bankruptcies). How many generations would you say there are between modern day and feudal times?

You're diverting from the point again.

Inequality is a tradition in England/Britain/etc. Inheritance is. These are inextricably linked. Our current chancellor, the man who is most championing a large reduction in inheritance tax, stands to inherit one of the largest sets of wealth in Western Europe. This is not a coincidence. Inheritance isn't about protecting your children, or supporting them, you do that while you're alive, both financially and non-financially. Inheritance is about ensuring whatever advantages you've had in life - whether earned or not - are passed onto your children to boost them above their peers.

Of course, in Feudal times, the importance of inheritance was so that the transition of power etc. would actually be smooth for society. There was of course selfish ideology, BUT the life expectancy back then was 40s/50s, a Lord would die and the sons wouldn't be of an age to have "earned" off their own merit. Now? The people that inherit in the vast majority of situations are in their late 40s or older. I've said before in this thread that my family is fairly wealthy and I stand to inherit large amounts, but if by the time I'm 50 I haven't set myself up in life to a degree where I'm comfortable without a handout from my parents, isn't that a negative reflection on me? A sign that I should fail? Obviously there are lots of surrounding circumstances for every individual, but all inheritance would do in terms of fairness in my case would be to help excuse the failure of my life assuming my family forgives me.

Others have cited examples earlier in this thread of friends who've pissed their lives away expecting a large inheritance. Again, is this something we want to encourage in society as a whole? An attitude? A belief system? The government, the press, the middle-class all talk about the entitlement of benefits culture, yet inheritance is FAR worse. Is it better that someone in a council estate feels entitled to the money to feed them and provide them with mediocre entertainment for a pittance, or that Gideon feels entitled to be one of the wealthiest men in the World despite having bullied half of Britain into a worse situation than they were in before?

Inheritance is an old-fashioned ideology based upon selfish principles that cause long-term harm to society as a whole and to the vast majority of individuals (even those who gain significantly from it at a time). I'm not saying we should introduce a 100% inheritance tax, but if the threshold were to be reduced and the scaling upon reaching it increased, I guarantee that it would cause vast improvements in the world. It's a selfish, short-termist view to have any other attitude, and everything you and others use to justify it are just excuses to try and claim entitlement to wealth you don't really deserve.

[eoJ]

And you're diverting from the point too. If you want to start a discussion about why inequality exists, then as both me and FC have mentioned, despite what you may say, it's not an easy question to answer. Even a discussion that stayed strictly on point would go on for hundreds of pages before even beginning to get to the bottom of it. If you want to create a thread for that, fine, but this is not the thread.

Have you looked at your family tree? I've looked at mine, another person investigated it when my dad was young, and gave a copy to all the people of my surname he could find. It only goes back a few hundred years, but even with small writing, it extends past the size of a super-king-size bed, both in height and width, and doesn't cover all the chains and ancestors. Pinpointing any of them more than a couple of generations ago and saying 'that's the reason I'm wealthy/poor' is impossible. If you're poor, there may be many reasons for it, but it's not because one (or several) of your many many great great [...] great grandfathers was a peasant in the middle ages. (Although, ok, perhaps it may be genetic, or some other reason - no one can say).

I notice you've neglected to cover how many generations there are between now and feudal times, nor the issue of inheritance in forms other than money/assets.

However, at the end of the day, the point is moot. To take an extreme example, you can debate until the cows come home about why gravity's bad, and why the world would be a better place without gravity, perhaps even to the point of convincing the other person that gravity needs to be stopped. However, until you propose a solution to the problem, the debate is futile.

Edited July 11, 2014 by eoJ

[eFestivals]

Seed capital:

But the thing with seed capital is it's disproportionate to the merit offered.

I see you still want to give yourself exemptions to give yourself privileges over others.

Transfer of wealth is to be limited under what I suggest, so that wealth cannot be captured by a small number of families for all time (which the certain facts proves as happening).

What of that do you have such difficulty understanding that you continually still think that transfers of wealth within families should be allowed?

If you think that wealth transfer for seed capital gives you (the transfer-er, or recipient) a poor deal under what I suggest, don't do it. Easy.

[eFestivals]

I notice you've neglected to cover how many generations there are between now and feudal times, nor the issue of inheritance in forms other than money/assets.

It matters not.

In all of that thousand years, hard work on (just) merit has managed to extract just 25% of the wealth from those families.

The vast majority of that wealth has been extracted from them within the last 100 years, when there were stronger inheritance taxes/death duties than exist today.

With the rules that exist today, the wealth is now being transferred back to those families, and not extracted from them.

People holding wealth today should do so because they've earned that wealth, and not because daddy gave it to them.

It's very simple, and exceedingly fair.

[eoJ]

Let's leave out references to me. I've never received seed capital. If you want to start a 'Does eoJ pay his taxes? If not, should he? Is he a c**t?' thread, then you're welcome to, but in here, it'll just bog the discussion down (and before you say it, this is the discussions forum, it needs a debate, so no responding to that with your opinions of the yes or no answers! )

My question was how you clearly define transfers of wealth (and whether the examples I gave would be included as them), which you've neglected to answer.

I'm not saying that they should be allowed or shouldn't be, I'm asking how they're defined, and how you separate them from straight cash gifts.

RE your second post, as you said, it matters not, without being able to say how you plan to do it.

Edited July 11, 2014 by eoJ

[kaosmark2]

However, at the end of the day, the point is moot. To take an extreme example, you can debate until the cows come home about why gravity's bad, and why the world would be a better place without gravity, perhaps even to the point of convincing the other person that gravity needs to be stopped. However, until you propose a solution to the problem, the debate is futile.

Proposed solution:

I'm not saying we should introduce a 100% inheritance tax, but if the threshold were to be reduced and the scaling upon reaching it increased, I guarantee that it would cause vast improvements in the world.

[eFestivals]

My question was how you clearly define transfers of wealth (and whether the examples I gave would be included as them), which you've neglected to answer.

Am I going to have to write you a dictionary?

I define it by wealth being transferred.

If you give your kid £10k, that's £10k of wealth transferred.

If you give your kid a car worth £10k, that's £10k of wealth transferred.

If you give your kid shares worth £10k, that's £10k of wealth transferred.

In these cases, if it happened today with today's laws, these transfers of wealth are (I believe*) required to be disclosed by the recipient.

(* it might be that £10k is below the threshold of what needs to be disclosed today, but the threshold used isn't an important part of the mechanism).

Nothing of this is undo-able, because it already happens to a degree within the rules that exist now.

RE your second post, as you said, it matters not, without being able to say how you plan to do it.

When someone proposes changing the levels of income tax, does it require anyone except the very stupid to ask how it's done?

Edited July 11, 2014 by eFestivals

[kaosmark2]

Thresholds and percentages are smoke screens. Its all about avoidance....

While I am not a great fan of the tax I am even less of a fan of the way some many people are allowed to get away with avoiding paying it.

And both of those comments apply equally to income tax.

[eFestivals]

Thresholds and percentages are smoke screens. Its all about avoidance....

Utterly wrong.

It's exceptions to the general rules that cause the avoidance problems, not the general rules themselves.

While I am not a great fan of the tax I am even less of a fan of the way some many people are allowed to get away with avoiding paying it.

The only way to stop them being able to get away with it is to tax them more effectively by making the laws you dislike stronger than they currently are.

You certainly won't make the laws more effective by saying you dislike the laws. That will only lead to them being weakened.

Edited July 11, 2014 by eFestivals

[eoJ]

Kaosmark:

Which still raises the questions I've previously asked about gifting, and why giving your money prior to death is any different from giving money afterwards.

Neil:

But you stated that investment in a business is fine (and if it's not, then the question remains about when it is, and when it's not). If someone goes and invests £10m into their child's business, they could work hard, or they could do diddly-squat, relatively. All they have to do is find a way to turn that £10m into something that will then generate enough returns to live on, which shouldn't be hard. That's still giving them the exact same free ride you'd be giving them (admittedly with a very small amount of work, but not what most of us would consider hard work) if you just put the money into some property, chucked the property into a trust, and allocated them the rental income, and I don't see any major reason why the latter should be taxable, or less of giving them a free ride, but the former not. Either way, it's still up to them whether they work hard or are lazy.

Last question: In that scenario, I'd only be asking what you plan to change them to, and how you'd deal with any effects resulting from those changes (for example, the obvious effects from making all income above £30k a year taxable @ 100%).

Edited July 11, 2014 by eoJ

[eFestivals]

Which still raises the questions I've previously asked about gifting, and why giving your money prior to death is any different from giving money afterwards.

Gifting money prior to death is exactly the same as gifting it after death - something I've said repeatedly.

So why haven't you got it?

Just not wanting to is my bet. It's too reasonable a point for you to accept, because then you might have to actually agree with it.

But you stated that investment in a business is fine (and if it's not, then the question remains about when it is, and when it's not). If someone goes and invests £10m into their child's business, they could work hard, or they could do diddly-squat, relatively. All they have to do is find a way to turn that £10m into something that will then generate enough returns to live on, which shouldn't be hard. That's still giving them the exact same free ride you'd be giving them (admittedly with a very small amount of work, but not what most of us would consider hard work) if you just put the money into some property, chucked the property into a trust, and allocated them the rental income.

Businesses have to submit accounts.

If a business is being used to illegally transfer wealth that will show within those accounts, and you and your child are going to jail.

You know, in exactly the same way as tax fraudsters (supposedly ) go to jail now. In my world it would actually happen.

Now, what is best for your daughter? You trying to give her money that sends her (and you) to jail, or you keeping her (and yourself) out of jail?

[eFestivals]

PS: tax fraudsters should also be liable to pay their own jail costs, to increase the impact of cheating and so lessen the cheating.

Edited July 11, 2014 by eFestivals

[eoJ]

Gifting: well, we're looking at that point at the moment.

Businesses: but what I'm asking is how you define illegal transfers of wealth. For it to generate a return (I'm not simply suggesting leaving the money in there doing nothing and drawing a salary) the accounts can be fine. They can be unprofitable, they can have low margins, but even someone with no business skills or work ethic whatsoever should still be able to easily make a return. Anyone given £10m to invest should be able to easily turn that into a profitable business. One with low margins perhaps, but a low margin on £10m is still a lot of money.

[eFestivals]

Gifting: well, we're looking at that point at the moment.

Businesses: but what I'm asking is how you define illegal transfers of wealth. For it to generate a return (I'm not simply suggesting leaving the money in there doing nothing and drawing a salary) the accounts can be fine. They can be unprofitable, they can have low margins, but even someone with no business skills or work ethic whatsoever should still be able to easily make a return. Anyone given £10m to invest should be able to easily turn that into a profitable business. One with low margins perhaps, but a low margin on £10m is still a lot of money.

They wouldn't be given £10M to invest, would they?

They can only be given £50k, in what I said.

If Daddy has invested £10M but isn't getting a return on his investment, it's not an investment and he's a tax cheat and going to jail. Kiddie does too, for going along with it.

[eFestivals]

PS: I accept that in what i've said there there's still some room for some minor cheating that might be claimed as a "genuine" investment in a business that fails, but that would unravel within a year or three. It can't be sustained.

So what i've said isn't yet perfect - but nothing is or ever can be.

However, the room for that minor cheating would be able to be closed down some more via some more specific rules to cover the various cheating possibilities.

Edited July 11, 2014 by eFestivals

[eFestivals]

PPS: if Daddy invests a lot in kiddie's business, all that ultimately gets to mean is that kiddie will lose control of that business - because Daddy's investment in the business can't be trasferred to kiddie.

Ultimately, it means that kiddie is better off if Daddy butts out. Kiddie's best chance of success is without daddy and by their own efforts.

[eoJ]

£50k point: The example I gave on the last page was in regards to business investment, and included an example of £600k, which you didn't take issue with. If that's not ok, I have a question that results from that, but I'll let you answer first: Is that example ok, assuming the father has some equity in return? (Whatever % that may be - if the child is a medical researcher, reckons they've just discovered the cure for cancer and wants to test & market it, obviously the father is probably going to take less of a % in their business than if they've just discovered they can make 15% profit importing sliding doors from China)

Transfer of investment: But won't that create a horrible mess? If we assume that the child has a larger % (for whatever reason, as above), then the stake gets transferred to the government upon death (requiring the government to then become a part of the business, potentially including management) or sold, which, providing the child has majority ownership, will be affordable by the child, giving the child full ownership.

RE cheating, we'll get onto that, it's difficult to define (at least in my head, hopefully the questions will clear it up) the line between the two at the moment.

Edited July 11, 2014 by eoJ

[eFestivals]

£50k point: The example I gave on the last page was in regards to business investment, and included an example of £600k, which you didn't take issue with. If that's not ok, I have a question that results from that, but I'll let you answer first: Is that example ok, assuming the father has some equity in return? (Whatever % that may be - if the child is a medical researcher, reckons they've just discovered the cure for cancer and wants to test & market it, obviously the father is probably going to take less of a % in their business than if they've just discovered they can make 15% profit importing sliding doors from China)

If Daddy invests £600k, it's Daddy's investment.

If there's suspicion of a piss-take on the equity share, it's not hard to see that's the case by finding out how willing others would be to invest on those same terms. If no one would, it's a pisstake.

Seeing some people around them going to jail would help concentrate people's minds.

Transfer of investment: But won't that create a horrible mess? If we assume that the child has a larger % (for whatever reason, as above), then the stake gets transferred to the government upon death (requiring the government to then become a part of the business, potentially including management) or sold, which, providing the child has majority ownership, will be affordable by the child, giving the child full ownership.

If kiddie has paid to buy Daddy's old share from the state then kiddie will own that share on merit, won't he?

(because the money used to buy it kiddie will have got on merit).

And no wealth will have been transferred to him for doing fuck all.

I'm not trying to claim that the rich wouldn't still have some familial advantages - of course they would (don't go thinking I can't already see how things could be exploited to an extent). But a lesser amount of privilege would be passed down families because less wealth could be transferred thru families, and that's a good thing.

[eoJ]

RE your first point: Something like an idea combined with someone's work ethic and skills is incredibly hard to put a value on. Also, what a father, or someone close to them may consider reasonable, is not the same thing as someone who doesn't know the person, or a professional investor, may consider reasonable (just look at MLM schemes, and some franchises for an example of this - should we prosecute anyone who ever got involved in one that wasn't too good?).

Perhaps the dad is infirm, so has no chance of being able to work, or leave the house (therefore providing little value, besides the money, and not having access to other means of investment), and despite having that lump sum, he's being chased by the Yakuza (for whatever reason - gambling debts? Sorry, I know we're going a bit beyond reality here, but I'm sure you can see similar situations occurring, even if not exactly the same). However, he does know the Yakuza are business savvy, and will happily take his equity in the business to write off his debts, if it's profitable (again, in a situation that extreme, the child is likely to be motivated to work pretty hard, but there are other similar situations, and the father may not have told his son).

If you borrow money from a bank, they've known you for all of 5 minutes, and give terms as such. A father has known you for all your life, and even if you go bankrupt, unlike a bank, he still has a good chance of being paid back in the future. You also can't prosecute someone (if the dad was someone whose line of work was investments, and as such could be reasonably expected to get a good deal, that could be a different matter) for making a bad deal, else anyone who got double glazing installed by Everest Windows would be in prison

RE the second: While that seems true at first, if the only reason he's able to afford his dad's share is as a result of the investment by his dad, then he hasn't necessarily earned it on merit. If the business has done worse than expected, and earned nothing (again, extreme example, but this one's just for the sake of maths, and at least not as extreme as the last), and the dad has a 40% share, then his share will only be worth £240k, and affordable (perhaps with a repayment plan, or a % buyout each year, although the son will have £360k in his share of the business).

Many partnerships have clauses where if the partner dies, the other partners have first right of refusal, and at that point, the business is either liquidated, the share sold, or the stake goes to the heirs - however without inheritance, the last part becomes a problem, as where does it go? Most people wouldn't want their new partner to be just any random stranger, and many would then instead prefer to liquidate, however you've then received a cash lump sum, no different from a gift. What's the other option?

Edited July 11, 2014 by eoJ