Inheritance tax
All the signs are that the Conservatives, urged on by their friends in the press, intend to mount a campaign to frighten people about having to pay inheritance tax (IHT).
The number of estates liable for the tax has risen from 15,000 to 42,000 since Labour took office, but this still means that more than 95 per cent of people die without their heirs having to cough up a penny. Moreover, Labour has actually increased the threshold at which the tax starts to be paid by more than the rate of inflation. It now stands at £263,000 instead of £215,000.
The real "complaint" is that rising house prices have resulted in many estates being pushed over the threshold. It is true that the average house has gone up from about £70,000 to £160,000 since 1997. That means that the average homeowner would have to have over £100,000 of other assets to have any IHT liability - and precious few do.
Ah, but the average home in the southeast is now worth £300,000, "so your heirs could be stung for tax at 40 per cent" warns the Sunday Times. Not quite. Lots of houses are below the average, but even if you take this figure and add £40,000 of other assets, the IHT bill is only £30,000 or under 10 per cent of the value of the estate.
Moaning that house prices have risen faster than inflation and that tax on them should be related to an index of house prices is to make the illogical claim that one kind of asset should be taxed at a lower rate than others precisely because it has conferred extra benefits on its holder. Perhaps the same reasoning should be applied to share prices after a boom?
It is also widely argued that IHT is a tax that hits the little people as the really rich can resort to all sorts of wheezes with gifts and trusts to minimise their tax bill, while someone with all their capital tied up in their home is a sitting duck with no escape. This is nonsense - and is a stalking horse for such measures as raising the threshold of the tax, which would of course confer almost all its benefit on the larger estates.
Any married couple with assets of up to £525,000 (which would include a house of above-average value, even in the southeast) can simply divide them equally, and leave £263,000 to a discretionary trust instead of directly to each other.
A brief clause in a will can achieve this at no cost - and should be well within the competence of even the smallest firm of solicitors. If the Tories are really anxious to remove fears about inheritance tax, they should ensure that all couples know how to draft their wills.
Moving to a system of "bands" rather than a single rate and converting the levy into a tax on the individuals who actually do the inheriting would also help.
