No Budget help for homeowners

Property taxes are hitting buyers and sellers right across the housing market. And there's no end in sight, says Christopher Browne

Join me, if you would, in an inheritance tax moment. The high streets are cordoned off, smoke billows from overworked brokers' offices and flurries of homeowners rush to cash in on the higher limit for IHT. I say moment, because the £263,000 cut-off point for paying the 40 per cent tax rose £8,000 - or hardly at all - in last week's Budget.

Join me, if you would, in an inheritance tax moment. The high streets are cordoned off, smoke billows from overworked brokers' offices and flurries of homeowners rush to cash in on the higher limit for IHT. I say moment, because the £263,000 cut-off point for paying the 40 per cent tax rose £8,000 - or hardly at all - in last week's Budget.

If inheritance tax was index-linked, we would all have more tax-free cash for our children to inherit - and if it was based on house price inflation it would mean a homeowner wouldn't have to pay it until his home hit the £358,500 mark (based on Halifax Bank figures). But, as property prices continue to rise and IHT remains almost static, fewer and fewer people will be able to use their houses or flats as tax havens.

Stephen Clark, a former Lombard bank manager, has just set up a trust of all his assets including his £225,000 apartment in Westgate-on-Sea, Kent, to cut his and his nine-year-old daughter's IHT bill from £150,000 to about £25,000. "It may be a sizeable saving, but if the tax was based on sensible thresholds, our liabilities would be nil," says the 55-year-old who has taken early retirement to look after daughter Rosie after the death of his wife.

Matthew Cove, of private capital investment specialists Throgmortons, agrees. "Although IHT was introduced to help redistribute the assets of the very wealthy, it has become a property stealth tax that hits both the rich and the poor, and anyone who has saved and been frugal all their life finds more and more of his assets being taxed."

A recent Council of Mortgage Lenders report revealed that 4.3 per cent of the UK's gross domestic product comes from property-related taxes - twice the average of EU countries and 1.3 per cent higher than the US - with stamp-duty payments quadrupling over the past five years. Though property taxes such as capital gains tax and stamp duty were frozen in the Budget, "no change" still feels like being short-changed to first-time buyers faced with rising house prices.

Yorkshire couple Philip Kemp and Hayley Vernum saved for three years before buying a house together in Ludden Foot near Halifax, Yorkshire, putting down a 5 per cent deposit on an £87,000 terrace. "If we had fallen below the stamp-duty threshold [1 per cent for £60,000-£250,000 properties], we could have bought earlier as it took us nearly a year to raise the duty and setting-up fees," says Hayley.

Halifax Building Society figures show the average price of today's UK home is £143,000. Yet the low duty limit of £60,000 has remained since 1993, with no increases to reflect inflation.

First-timers Catherine MacDougall and Kelly von Derstein, who are currently renting in Bath, Wiltshire, were "massively relieved" when Chancellor Gordon Brown announced no rises in stamp duty. The pair, who both work as independent financial advisers, say they have turned down "a deluge of university leavers, trainees, young couples and potential first-time buyers who have been priced out of the market". Catherine says: "Many Bath houses cost as much as in London, yet a lot of local people are on lower salaries and cannot afford to buy."

Despite the affordability factor, or lack of it, the pair are hoping for some personal success. After two months of house-hunting-in-earnest, they have just viewed a £150,000 two-bedroom terrace house 10 minutes from Bath. Two days ago they heard their offer had been accepted.

"We've got the deposit and setting-up fees ready, so it's now up to our solicitor to sort out the legal side. We're so pleased duty didn't go up in the Budget, for, if it had gone up the half-a-per-cent that some specialists predicted we would have faced a bill of £2,250 instead of £1,500. The Government should now raise the cut-off points and help people to make that first step on to the housing ladder," says Catherine.