Middle classes could suffer with Brown's new inheritance tax

Lord Camoys is probably the type of titled landowner that Gordon Brown had in mind when he decided to tighten up the Inland Revenue rules surrounding inheritance tax.

Lord Camoys is probably the type of titled landowner that Gordon Brown had in mind when he decided to tighten up the Inland Revenue rules surrounding inheritance tax.

However, many homeowners in middle England could fall victim to the Inland Revenue's new tax rules.

The present Lord Camoys, 64, lives in palatial style at Stonor, a mansion with a 14th-century chapel and ancient stone circle surrounded by a wooded deer park, five miles from the Thames at Henley. The title was created in 1264 and a forebear was at the Battle of Agincourt, but now the hereditary peer is preparing for battle again.

Opposition leaders are taking up the cudgels with the Treasury over a measure in the Budget ostensibly to close down a loophole which Mr Brown's advisers believe was used by the landed gentry to avoid inheritance tax.

Lord Camoys, who comes from one of the leading Roman Catholic families in England, was Lord Chamberlain until he stepped down in 2000. He was the first Roman Catholic to have held the post since Henry VIII broke off diplomatic relations with Rome.

He was one of many landowners who used the long-established rules to avoid inheritance tax by gifting his home to his heir, his son William, some years ago, while continuing to live in the property.

The Treasury currently takes income tax on a notional rent of one per cent of the value of the property from those like Lord Camoys, who have continued to enjoy the benefits of their stately homes.

However, from spring next year the Inland Revenue will increase the notional rent to five per cent of the value of the property, and for the first time, it will cover chattels such as works of art.

The Stonor family has lived in the house for 800 years. The house is open to the public, with displays of outstanding portraits, tapestries, bronzes and ceramics.

However, to avoid the new tax, Lord Camoys may have to put some of the works of art in the vaults, unless Mr Brown has a change of heart.

The tax means that the Inland Revenue will collect around £40,000 every year on works of art valued at £1m.

In common with many homeowners faced with similar tax demands, he is furious with the Treasury because it is also threatening to backdate the new rules to March 1986.

That could catch many homeowners who have entered the tax schemes with their children since the house price boom of the 1990s took off.

Lord Camoys said: "If you introduce retroactive legislation, you cannot plan ahead. It also has the effect of denying the Government's supposed support for access to works of art and heritage."

House price inflation, particularly in the south of England, could leave far more homeowners complaining about the new rules. The Chancellor raised the threshold for inheritance tax in his Budget to £263,000 but that could still leave many middle-class homeowners seeking ways of avoiding the tax.

Tax consultants have been lobbying the Chancellor behind the scenes since the Budget to ease the tax burden that many homeowners will face. The Conservatives have also protested during the passage of the Budget legislation through the Commons and will be seeking more amendments to the Finance Bill in the report stage in a fortnight.

Howard Flight, the shadow Chief Secretary to the Treasury, has called on the joint Parliamentary Select Committee on Human Rights to investigate the human rights abuses which may be caused by the introduction of retrospective legislation.

"These rules are extremely unfair," said Mr Flight. "The Government has presented this legislation as an attack on aggressive inheritance tax avoidance schemes but it goes much further than that. It is a new catch-all tax which could hit the middle classes as well as the big land owners."