'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 opening statement of Labour Government's 2005 Budget. But word 'fair' is wide off mark when considering incidence of inheritance tax on an increasing number of homeowners over past few years.
The Inheritance Tax Problem
Over past few years inheritance tax ceased to be 'rich person's tax' or 'voluntary' tax which it used to be. The cause of problem has been ever increasing scale of house prices resulting in property values which far exceed Nil Rate Band exemption for inheritance tax.
Research conducted by stockbrokers Brewin Dolphin, there are an estimated 2.4 million homes across UK that are now valued above £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 threshold will be subject to 40% of tax.
In summary, number of homes sold which were above inheritance tax threshold rose from 3% in 1994 to 14% in 2004 and Government has pocketed a staggering £3.3bn in inheritance tax since 1997!
The 2005 Budget
The inheritance tax issue was a main concern for Chancellor Gordon Brown after various professional bodies have stressed need for threshold to be increased. Having heard arguments Chancellor did just that.
The current Nil Rate Band threshold is £263,000 and Chancellor has announced that this is to be increased to £275,000 for forthcoming tax year 2005/2006 and then further increased to £285,000 and £300,000 following two years. As a result of these increases Chancellor has argued that 94% of estates would not pay inheritance tax. So has Chancellor done enough?