Inheritance tax net to treble by 2020, says Halifax study

The number of homes that will come under the inheritance tax net will treble by 2020, says mortgage bank Halifax, based on a study it had conducted recently. LONDON: The number of homes that will come under the inheritance tax net will treble by 2020, says mortgage bank Halifax, based on a study it had conducted recently.

If the inheritance tax threshold continues to rise on the basis of retail price inflation, there will be 4.6 million properties liable to pay the tax by 2020, against 1.5 million properties as of now, Halifax said.

The government will derive a tax revenue in the range of 5.6 billion pounds from this source, which is a 249 per cent increase on the amount received by the Treasury in 1996-97.

Tim Crawford, Halifax’s group economist, suggests that the inheritance tax rates should be tied to house prices rather than retail prices. He said inheritance tax revenues are likely to rise significantly over the next 15 years if the government does not index the threshold in line with house price inflation. “The ageing of the British population means the number of estates is likely to increase substantially in the future. More of these estates will fall into the inheritance tax net,” he said.

Halifax said by 2020 as much as 73 per cent of the extra inheritance tax revenue will come from the south of England, which has the highest house prices in the country.

As per the rules, all estates worth over 285,000 pounds are liable to pay inheritance tax at 40 per cent. Chancellor Gordon Brown has, in his March budget proposals, announced that the threshold would be raised to 312,000 pounds in 2008-09 and to 325,000 pounds in 2009-10.

Another survey — Brewin Dolphin’s second annual National Inheritance Survey — has brought out that nearly 27 per cent of all Britons who are anticipating an inheritance are relying on it to fund their retirement. And at least 23 per cent of these people are not aware that inherited assets are subject to 40 per cent tax if they are worth over 275,000 pounds.

Brewin Dolphin’s marketing director Charlotte Black said millions of people are unaware of how hard they will be hit by the inheritance tax bill. “Our research reveals that the majority of the population favours a more equitable system with the inheritance tax threshold index-linked to house prices. Property prices have increased by 160 per cent since 1997, but the inheritance tax threshold has not kept pace. If the government had increased the IHT threshold in line with house price increases since 1997, it would now be around 500,000 pounds,” she said.

Brewin Dolphin recommends that those planning to leave an inheritance should find out investment methods like establishing family trusts and transferring assets within a family to mitigate the impact of the tax and consider specialised investment portfolios, which are inheritance tax-free.

Meanwhile, the Association of British Insurers has estimated that more than one million trusts in the country will be affected by the new budget provision involving inheritance tax planning. The treasury in its estimate had said around 23,000 trusts, identified by paymaster general Dawn Primarolo, would be affected by the provision, which Primarolo claimed is a “tiny fraction of the wealthiest top 1 percent of the population”.

The treasury reiterated that its proposed measures will hit only a small wealthy minority and were not a stealth tax on ‘Middle England’. A spokesperson said any suggestion that most people’s insurance policies would be affected by the budget measure is just untrue. “Normal life insurance policies simply do not create trusts that would be subject to inheritance tax under the new rules. Only a small number of highly sophisticated life policies —