'Careless' changes make life worth living

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The time-scale of the Budget move to increase the inheritance tax threshold was yesterday branded as "carelessness" reminiscent of the Government clampdown on "fat-cat" share options earlier this year.

Tax and financial planning experts also questioned whether this and another change aimed at helping the savers of "middle Britain" would hit their mark.

"One thing we're all up in arms about is that the increase doesn't come in until April," Tim Jones, senior manager at accountants Binder Hamlyn, said.

The Budget proposed to increase the inheritance tax threshold by 30 per cent so that estates of less than pounds 200,000 would be free of the tax, which bites at 40 per cent on anything over the threshold. Until April the tax- free limit will stay at the current pounds 154,000. The change will offer a tax saving of pounds 18,400 to all estates over pounds 200,000.

"Basically it's hard luck if you die between now and April," Mr Jones said. "This move betrays a certain carelessness, like that on share options [when moves to hit "fat cats" also impacted on low-paid supermarket check- out workers]. It is the winter. There could be quite a cull if there was a flu epidemic."

The Treasury said that the changes to the threshold level were planned for April because that is when the tax year changes and that is the date for implementation of most of the Budget changes. It said the detail of the proposal would not be published until the new year, as part of the Finance Bill to bring the Budget into law.

Mr Jones added that an increase to pounds 200,000 in the tax-free limit "was not as dramatic as it first looked. This helps the rich, but it's not an awful lot of help for middle England".

A parent's house is counted in the estate towards this limit as well as other assets. "This still leaves a lot of families with houses in the [inheritance tax] net," Dawn Nicholson, private client tax partner at accountants Ernst & Young, said.

Ms Nicholson said that while people might call inheritance tax avoidable, it was only possible to escape the tax net to the extent that individuals could give away assets seven years before death. But parents giving the family home to children was not tax-efficient if any parent continued to live in it.

However, Ms Nicholson noted the Chancellor's comment that the increase would take 7,500 estates a year out of the inheritance tax net and that a separate measure to exempt unquoted investments from inheritance tax would help family businesses.

The exemption could also boost investment interest in companies quoted on the new Aim stock market and the Enterprise Investment Scheme, a high-risk successor to the previously- abolished Business Expansion Scheme.

A number of financial advisers also noted that the benefit of the cut in tax on savings to 20 per cent would only be marginal for most retired people - those the Chancellor suggested he was targeting in the savings aspects of his Budget.

While basic-rate taxpayers stand to benefit from the cut in tax on interest from savings, "90 per cent of the [retired] population get 90 per cent of their income from pensions", Mr Jones said . Pensions continue to be taxed at 25 per cent for basic-rate taxpayers. Higher rate taxpayers do not benefit from the Budget savings tax cut - they will still pay 40 per cent tax.

For higher rate tax-paying pensioners the move was "no good". Mr Jones said to "really benefit" a retired couple might need invested assets of pounds 1m. In that case they might be able to get another pounds 1,000 each out of the tax change. But that will only help a minority with substantial income-producing assets they could "juggle".

"And for the under-45s, with negative equity, struggling with a family, there's little in the change [for them]," he said.