The Budget 2005 & Inheritance Tax: Has the Chancellor Done Enough?
By Janine Byrne
Introduction'The Government's economic objective is to
build a strong economy and a fair society, where there is opportunity and
security for all." So reads the opening statement of the Labour Government's 2005
Budget. But the word 'fair' is wide off the mark when considering the
incidence of inheritance tax on an increasing number of homeowners over
the past few years. The Inheritance Tax Problem Over the past few years inheritance tax ceased
to be the 'rich person's tax' or the 'voluntary' tax which it used to be.
The cause of the problem has been the ever increasing scale of house
prices resulting in property values which far exceed the Nil Rate Band
exemption for inheritance tax. Research conducted by stockbrokers Brewin Dolphin, there are an estimated 2.4
million homes across the UK that are now valued above the £263,000
inheritance tax threshold, before taking any other assets into account. And one in five
people anticipating an inheritance have no idea that anything over and above
the threshold will be subject to 40% of tax. In summary, the number of homes sold which
were above the inheritance tax threshold rose from 3% in 1994 to 14% in
2004 and the Government has pocketed a staggering £3.3bn in inheritance
tax since 1997! The
2005 Budget The inheritance tax issue was a main concern for the Chancellor
Gordon Brown after various professional bodies have stressed the need for
the threshold to be increased. Having heard the arguments the Chancellor
did just that. The
current Nil Rate Band threshold is £263,000 and the Chancellor has
announced that this is to be increased to £275,000 for the forthcoming
tax year 2005/2006 and then further increased to £285,000 and £300,000
the following two years. As a result of these increases the Chancellor has argued that 94%
of estates would not pay inheritance tax. So has the Chancellor done
enough? Adequate
Increases? Are
the increases to the inheritance tax threshold good enough? Should they
have been increased further? It is certainly true that previous
inheritance tax increases have not been so steep; usually the increases
are made in line with current inflation rates. However, this Budget has
seen an increase which is way above inflation. On the other hand, the contrary argument is
that the high rise in house prices necessitated such an increase, and even
this may not be enough. The Halifax Building Society calculated that had
the inheritance tax threshold increased in line with house price inflation
over the last 10 years, then the current threshold would be sitting at
£390,000 - significantly less than the figure announced by Gordon Brown. Conclusion: Budget Blues So was this a 'bad' budget' from the
inheritance tax point of view? Not entirely. Any increase in the Nil Rate Band is to be
welcomed as it sets free some of those caught in the inheritance tax net.
As Simon Massey (partner with chartered accountancy firm Menzies) told BBC
News, "The increase to the Inheritance Tax threshold is a long way
above inflation and is very welcome...It is good to see something being
done." So
whilst the increase may not exactly be in line with the current house
price situation, it will certainly be a relief to many, and any increase
is better than no increase at all. About the Author Miss JsByrne holds a Bachelor of Law
degree with Honours & a post-graduate diploma in Legal Practice. Also
gained qualification in Wills Writing & is the owner/author of www.Draft-Your-Will.com and
DYW Wills & Estate
Planning Newsletter.
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