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| Inheritance Tax |
| Nine million family homes taken out of Inheritance tax |
- Inheritance tax was originally intended to apply only to the wealthiest households in Britain.
- However, under Labour, four in ten homeowners have been drawn into the inheritance tax
net.
- The Conservative Party will raise the inheritance tax threshold – the level at which people
begin to pay the tax - from £300,000 to £1,000,000.
- This will lift almost nine million homeowners out of the inheritance tax net, and will mean
that only millionaires will be eligible for inheritance tax.
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New challenges
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The aspiration of owning your own home has become an increasingly distant dream. Thanks to
high house prices and rapid increases in stamp duty, the bottom rungs of the housing ladder are
broken. And once on the ladder, parents find it harder help their children when they die because
of the iniquities of inheritance tax, which now threatens four in ten homeowners.
- Research by Scottish Widows shows that 37% of homeowners – more than 9 million homeowners
- are now trapped in the inheritance tax net ( Scottish Widows press release, ‘Four in ten
homeowners still caught in IHT trap’, 6 April 2007)
- Since 1997, the number of households paying inheritance tax has more than doubled. Instead of a
tax on the very wealthy it has become a tax on middle class aspiration. (HMRC, Table T1.4)
- Average homeowners in half of all local authorities (177 out of 375) are now eligible to pay
inheritance tax. (Conservative Party research based on Scottish Widows’ independent analysis.
See map overleaf for methodology)
- The average home in London is now liable for inheritance tax (£338,950 value in June 2007
according to the Land Registry, compared to a threshold of £300,000 in 2007-08)
- Inheritance tax is the only tax for which Labour has set out the thresholds for 2008, 2009 and 2010.
According to this schedule, the inheritance threshold will still only be £350,000 in 2010 (Budget
2007, HM Treasury)
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Old politics
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Gordon Brown continues to rely on stealth taxes and hidden fiscal drag to increase the tax
burden on hardworking families.
- Gordon Brown’s stealthy decision not to increase inheritance tax thresholds in line with house
price inflation has meant that revenue from inheritance tax has more than doubled under Labour,
rising from £1.6 billion in 1996-97 to £4.0 billion in 2007-08 (HM Treasury, Budget 2007, p.281
and Budget 1997)
- Since 1997, Gordon Brown has introduced 111 stealth taxes, and increased the tax burden on the
average British family by £1,300 (Conservative Party analysis; Institute for Fiscal Studies, Green
Budget 2007)
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Change required
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The Conservative Party will raise the inheritance tax threshold from £300,000 to £1,000,000.
This will lift almost nine million people out of the inheritance tax net, and save up to £280,000 in
tax for each estate.
- According to independent research by Scottish Widows, this will mean that instead of 37% of
households currently being eligible for inheritance tax, only the top 2% would risk falling into the
inheritance tax net (Scottish Widows research)
- Instead of average households in 177 out of 375 local authorities being eligible for inheritance tax,
it will now only affect average households living in the wealthiest area in the UK: Kensington and
Chelsea (Based on average house prices over £210,000 and £910,000; in addition to average
taxable non property household wealth of £92,034 (Sources: Land Registry; CEBR)
- By radically simplifying the tax system for the majority of households, this measure will mean
fewer people having to pay for expensive tax planning advice, potentially saving hundreds of
millions of pounds in advisers’ fees.
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Details and Costing
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According to Government figures, raising the inheritance threshold to £1,000,000 will cost £3.1 billion
in the tax year 2008-09 (Hansard, 23 Apr 2007, Column 987W).
This will be paid for by an annual Offshore Domicile Levy on UK residents who are domiciled
offshore and who currently pay no UK tax on their offshore income.
Cautious estimates suggest that this Offshore Domicile Levy would be paid by approximately 150,000
foreign domiciles living in the UK, and would raise £3.5 billion a year if it was set at £25,000.
The Offshore Domicile Levy strikes the right balance between:
- Ensuring that all UK residents pay their fair share towards our public services; and
- Maintaining the competitiveness of the UK as a location for high net worth individuals.
By safeguarding the concept of domicility, which Labour has held under review for over five years,
the Offshore Domicile Levy will also provide greater legal certainty for high net worth individuals.
This will help reassure investors and skilled workers who currently face significant uncertainty over
the future of their tax status.
A further £400 million raised by the Offshore Domicile Levy will be used to exempt 200,000 firsttime
buyers a year from stamp duty. |
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