One day, son, all this could be the taxman's
It's the new national obsession: what can we do to avoid being clobbered by inheritance tax?
Sunday 01 October 2006
Talk tax at the dinner table and you'll be ignored. Narrow it down to inheritance tax (IHT), though, and the conversation will flow fast and furious.
Thanks partly to the political party conference season and policy reviews - the Conservatives go this week after Labour and the Liberal Democrats - and partly to soaring property prices, concern about IHT is muscling its way into millions of minds.
Many readers have contacted The Independent on Sunday Money desk to express their concern that their estates are now worth a lot more than the current £285,000 threshold (IHT is paid at 40 per cent on anything over this) - and to complain about how unfair it is that they should pay have to pay the tax.
Stuart Mann bought his house in Manchester for "not many thousands of pounds" under the 1980s "right to buy" policy, which let council tenants buy their home at a discount. Today, the value of his property, his only asset, has caught him in the IHT net.
"I really don't know if I'm the sort of person the Government wants to tax, but my family all work hard and now face an IHT bill when I die. The home is all I've got to pass on."
Mr Mann's predicament, like that of hundreds of thousands of others whose home is their only major asset, seemed to have been addressed in one idea leaked last week. It emerged that as part of a review of tax policy, likely to be published next week, the Tories were considering exempting a family's main home from an IHT estate.
It sounded a surefire vote winner, but critics pounced to ask how the party expected to replace the lost tax revenue. The Tories moved to distance themselves from the idea.
Although the Government has no immediate plans to review the way in which IHT is calculated, former ministers including Stephen Byers and Alan Milburn have recently called for either abolition or reform because of its potential to hurt ordinary people financially, and not just the wealthy.
The Liberal Democrats, meanwhile, are moving towards backing a new model known as "accession".
Under this system, it would be the heirs to the estate who are examined for tax purposes, and given an IHT allowance on the legacy- rather than the estate itself.
For example, say a parent dies and leaves £500,000 for his two children. If, as today, the IHT rate is £285,000, there would be 40 per cent tax to pay on £215,000 under the current arrangements.
Applying the accession proposals, though, there would be no tax to pay since each child would receive £250,000 - well inside their individual £285,000 IHT thresholds.
"We think [it will encourage] people to spread their wealth between more people," says Will de Peyer, the Lib Dems' Treasury adviser.
It's not just the political parties banging the drum for change. Many in the financial services industry have called for radical reform, and most prominent among these is the Halifax.
In its position as the country's biggest mortgage lender, it has cranked up its research team to pump out a stream of reports highlighting how property prices have outstripped the IHT threshold.
Four reports in as many months have focused on this concern. Last week, the Halifax revealed that one in 10 of 480 towns in England now had an average house price worth over £285,000 - catching many more into the IHT net.
Five years ago, the same survey found that just 4 per cent of homes were worth more than the then £242,000 limit.
In August, the bank underlined how there had been a 72 per cent rise in the number of estates paying IHT in the five years to the 2003-04 financial year. The figure, it said, stood at 30,451.
The bank also flagged up the Government's rising tax take - a record £1.7bn in the first six months of this year - from death duty.
"It's the danger of hitting both middle England and those it wasn't intended to target, such as people without the means to get around IHT [via trusts or tax planning]," says Martin Ellis, chief economist at the Halifax.
Many solicitors, accountants and specialist financial advisers report a huge increase in the number of families wanting to know how to keep a lid on their IHT liability.
This is often accomplished via a discretionary will trust - which in effect lets you cut your home in half to make use of both spouses' allowances - or by giving away large cash gifts, which will be free of tax as long as you live for another seven years.
The Halifax's campaign centres on getting the IHT rate to be linked to house price inflation; if the Government had pursued such a policy over the past 10 years, the tax threshold would be £430,000.
"For the majority of people, the house is the biggest asset," adds Mr Ellis, "and that makes it more difficult to get around the tax."
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Is 31 May really the day when we have paid all of our tax for the year?
Women born in 1950s facing severe financial hardship over pensions could have fates changed by Ros Altmann - should she choose to help
Five Questions On: GB Energy's new tariff
Simon Read: You're guilty until proven innocent when HMRC sends in the tax credit detectives
Bank-beating exchange rates on your international payments
- 3 Alton Towers crash: Four seriously injured and 16 guests trapped as Smiler ride carriages collide
- 4 Ann Summers survey reveals the UK's favourite sex position
Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination
Migrants in Kos: Photos show real tragedy after Brits abroad complain of 'awkward' holidays
British tourists complain that impoverished boat migrants are making holidays 'awkward' in Kos
Michael Gove determined to scrap the Human Rights Act – even if Scotland retains it
Threat to scrap Human Rights Act could see UK follow Nazi example, warns UN official
Church of England 'one generation away from extinction' after dramatic loss of followers
iJobs Money & Business
£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...
£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...
£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...
£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...
Day In a Page
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
This four-bedroom home offers a vaulted ceiling in a breakfast room that's ideal for summer entertaining with doors that open to the patio and garden.
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool