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?

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

PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Client Services Manager - Relationship Management - London

    £30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...

    Recruitment Genius: Credit Controller / Customer Service

    £18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...

    Recruitment Genius: Tax Assistant

    Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

    Recruitment Genius: Outbound Sales Executive - OTE £25,000

    £16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

    Day In a Page

    Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

    Celebrities call on David Cameron to take more Syrian refugees

    One young mother tells of torture by Assad regime
    The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

    The enemy within

    People who hear voices in their heads are being encouraged to talk back
    'In Auschwitz you got used to anything'

    'In Auschwitz you got used to anything'

    Survivors of the Nazi concentration camp remember its horror, 70 years on
    Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

    Autumn/winter menswear 2015

    The uniforms that make up modern life come to the fore
    'I'm gay, and plan to fight military homophobia'

    'I'm gay, and plan to fight military homophobia'

    Army general planning to come out
    Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

    What the six wise men told Tony Blair

    Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
    25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

    25 years of The Independent on Sunday

    The stories, the writers and the changes over the last quarter of a century
    Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

    Homeless Veterans appeal

    As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
    Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

    Smash hit go under the hammer

    It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
    Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

    The geeks who rocked the world

    A new documentary looks back at origins of the computer-games industry
    Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

    Belle & Sebastian is taking a new direction

    Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
    America: Land of the free, home of the political dynasty

    America: Land of the free, home of the political dynasty

    These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
    A graphic history of US civil rights – in comic book form

    A graphic history of US civil rights – in comic book form

    A veteran of the Fifties campaigns is inspiring a new generation of activists
    Winston Churchill: the enigma of a British hero

    Winston Churchill: the enigma of a British hero

    A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
    Growing mussels: Precious freshwater shellfish are thriving in a unique green project

    Growing mussels

    Precious freshwater shellfish are thriving in a unique green project