Budget 1999: Inheritance And Capital Gains - Fears not realised as thousands more gain exemption

THE CHANCELLOR of the Exchequer yesterday pleased the tax planning industry by boosting tax allowances on both inheritance and capital gains tax, exempting thousands of people from paying them in the new tax year.

From April, inheritance tax will only be levied on the value of an estate above the allowance of pounds 231,000, which has been raised by pounds 8,000.

Capital gains tax will only be levied on amounts exceeding pounds 7,100 - a pounds 300 rise over last year. There will be no change in the rate of either tax.

Mr Brown said that Britain now had the lowest rate of capital gains tax in its history. He added that only 97 per cent of inherited estates would be liable to inheritance tax.

The moves relieved tax advisers, who had feared a full-blooded crackdown on inheritance tax. Accountants and tax planners feared the Budget would include measures to block the most common loophole in the tax, relied upon by tens of thousands of people to exempt their inherited estates.

The loophole, known as the "potentially exempt transfer", involves transferring wealth to a trust in the name of dependents at least seven years before the person transferring it dies. It is partly because of this loophole that inheritance tax barely raises pounds 1.8bn a year.

The Chancellor instead announced a smaller crackdown, buried in the fine print of the Budget, on some of the more exotic avoidance techniques used by the wealthiest investors.

Chas Ray-Chowdrey of the Association of Chartered Certified Accountants said: "We are pleased that there was no crackdown on the transfers. But the overall bad news is in the underlying details not announced in the Budget speech."

In particular, the Budget will block a loophole made famous by Lady Ingram, an elderly relative of "It-Girl" Tara Palmer-Tomkinson. Earlier this year Lady Ingram won a legal battle with the Revenue that went all the way to the House of Lords.

Lady Ingram had gifted property worth millions of pounds to her solicitor, who arranged a lease-back to her so she could still live in it. The freehold of the property was then passed to dependents, taking it out of her taxable estate.

The avoidance technique is based on the principle of "gifting" a property while retaining the right to live in it. In Lady Ingram's case she also retained the right to a rental income.

The Revenue regarded this technique as abusing the proper notion of a gift - calling it a "gift with reservation" - and pursued her to the House of Lords. The Lords ruled in her favour.

Yesterday's measures were designed to redress the legal balance in favour of the Inland Revenue so "gifts with reservation" can be taxed. Officials view the Lords' decision as showing the rules do not work as they should. The new measures will stop avoidance where a donor keeps a financial interest in the property and has the right to live on it.

Responding to the changes on capital gains tax, the tax industry welcomed the Budget but said it was not enough to make up for the complexities introduced in the last Budget.

Last year, Mr Brown stopped the use of an inflation index to offset capital gains tax, instead bringing in a tapered tax which reduces to 10p on assets held for 10 years or more. Tax advisers say the move has made the tax more complex to administer.

Angela Knight, a former Treasury minister who heads the Association of Private Client Investment Managers, said: "A number of small investors will still be liable to pay. At minimal cost the Chancellor could have cut them out of CGT altogether."

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Life and Style
Suited and booted in the Lanvin show at the Paris menswear collections
fashionParis Fashion Week
News
i100
Arts and Entertainment
Kara Tointon and Jeremy Piven star in Mr Selfridge
tvActress Kara Tointon on what to expect from Series 3
Voices
Winston Churchill, then prime minister, outside No 10 in June 1943
voicesA C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
News
i100
News
An asteroid is set to pass so close to Earth it will be visible with binoculars
news
News
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
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.

iJobs Job Widget
iJobs Money & 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...

Ashdown Group: Java Developer / J2EE Developer - Watford - £45,000 - £47,000

£45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...

Ashdown Group: Marketing Product Manager - (Financial Services) - SW London

£35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

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