Inheritance Tax is very much in the news at the moment given the pronouncement on Monday at the Conservative Party Conference in Blackpool that the tax free threshold will, under a future Conservative government, increase from the present £300,000 – £312,000 from 6th April 2008 – to £1 million. This may, from those who have a potential Inheritance Tax problem now, provoke a response to do nothing about the current potential liability. This in our view would be the wrong reaction.
Firstly, it assumes that at the time of your demise in due course, there will be a Conservative government. This must be a lottery, given our political system. The Labour Party is also committed to a radical reform of the tax, but with the declared intention of increasing the yield to £10 billion, rather than the present £4 billion. Increased rates of tax, a reduction in business property and agricultural property relief from 100% to 50% and the reintroduction of Capital Transfer Tax – imposing an attendant tax charge on all transfers of capital over a certain taxable threshold – were all clear intentions in a Labour Party manifesto published in 1991.
Secondly, it assumes that a Conservative government will adhere to its pledge; this too cannot be certain. The tax shortfall occasioned by increasing the threshold at which Inheritance Tax is to become payable is to be collected by an arbitrary annual tax charge of £25,000 on non domicilaries but that, according to Conservative Party figures, will replace just the £3.5 billion that Inheritance Tax currently produces. If, as seems likely, the yield from Inheritance Tax increases – with property price increases etc – then this attack on non domicilaries will become more severe and will have political implications; will these (not always wealthy) individuals come to the UK in the first place and if not, will the overall tax yield fall?
What the pronouncement is likely to cause – in our view – is a reaction against the Conservative Party by the overwhelming majority of voters (less than 10% of the population have an Inheritance Tax problem). This looked for reform will be seen by a significant proportion of the voting public as both xenophobic and a tax give away to what they see as the super rich ie., those with combined estates of over £600,000 (£624,000 from next April). If it seems likely to lose rather than gain votes, it will as a policy be abandoned, as a matter of political expediency. The real beneficiary of this will be HM Revenue & Customs, who are likely to collect a substantially increased amount of Inheritance Tax from those who have taken the gamble and decided not to plan.
For more information, please contact Peter Legg, Head of Inheritance Tax Planning Matters, on 020 7549 2492 or complete the online form below.