By: BILL BLEVINS
financial@portugalresident.com
FOLLOWING PROPOSALS for revolutionary tax cuts in the UK by the Conservative party, inheritance tax (IHT) may be scrapped. But first the Tories have to win the next general election and a date has not even been set.
In what is seen as an attempt to woo voters along with a bid to grab the headlines away from Prime Minister Gordon Brown, the Tory party has announced a package of proposed 14 billion pounds sterling worth of tax cuts, including the hated IHT.
Plans to cut IHT form part of the proposals put forward by the Conservative party’s Economic Review Group, headed by former cabinet minister John Redwood and the chief executive of the retail group, Next, Simon Wolfson.
IHT is currently levied on assets over the current 300,000 pounds sterling tax free threshold at the rate of 40 per cent. The threshold is due to rise to 350,000 pounds sterling by 2010. Over two million properties are valued at over 300,000 pounds sterling and research has indicated that by 2012, the average UK house price will exceed 300,000 pounds sterling.
Every day, more and more ordinary families are hit by this devastating tax where soaring house prices have brought them into the IHT net but where many lack the cash resources to pay the tax.
IHT is expected to bring in four billion pounds sterling for the UK treasury for this tax year. The radical proposals announced by the Tories aim to replace this punishing tax at a cost of 2.6 billion pounds sterling with a rearrangement of capital gains tax that would net 1.4 billion pounds sterling a year for the treasury. Main residences would be exempt and all assets held for more than 10 years prior to death would be exempt.
Since taking over as Prime Minister, Gordon Brown has dealt with some major issues and increased Labour’s lead in the opinion polls. The Tory tax cutting package is seen by financial experts and commentators as a way of attracting support for David Cameron, in the face of steady criticism from the right of the Tory party for the leadership, to stop its central stance and modernising ideas, and to fall back on the old traditional tax cutting theme, long seen as an old favourite to win voters.
Shadow Chancellor George Osborne will not commit to the tax cuts. Although he is in favour of a cut in IHT, which he considers as unfair in its present form, he does not advocate unfunded reductions at the next election. Osborne and other senior Tory figures have made it clear that the party would not reduce the level of taxation in the early years of a Tory government, frightened of seeming to back any threat to the UK’s range of sanctified public services.
Other Tory leaders attempted to soften the proposed binning of IHT calling it one of a “range of options” being viewed to energise the economy. And in a BBC Newsnight programme, the Shadow Chief Secretary to the Treasury, Philip Hammond, said that the Tories considered Redwood’s recommendations as just “good ideas”.
“Inheritance tax was originally designed to target the very rich”, Osborne said. “But these days the very rich avoid it by hiring expensive tax advisers. It is an increasing number of ordinary homeowners who are now hit by inheritance tax and that is unfair. So I will be looking very carefully at any proposals to ease the burden of this tax on these families”.
He added: “For tax reductions to be meaningful they have to be sustainable. That is why I have said all along that economic stability and sound money come first and we won’t take risks with the public finances … Any reductions in specific taxes will have to be balanced by tax increases elsewhere”.
Unfair tax
The Labour party condemned the Economic Review Group’s proposals, arguing that they would need to be paid for by massive increases in green taxes. The Conservative’s estimate that the tax cut package would cost 21 billion pounds sterling was slammed as inaccurate.
There has certainly never been any indication that the Labour Party would consider removing this tax. In fact, an inheritance tax expert who worked for the Inland Revenue for 18 years recently said that the government would like to see IHT revenue increased to nearer 10 million pounds sterling.
Independent financial advisers (IFAs) back the Tory plan to abolish IHT since it is a major concern of many of their clients. However, advisers and IHT product providers are sceptical about whether a Conservative government would actually take such a step and described the announcement as “headline grabbing” and a “vote pleaser”.
Commenting on the proposed measures last week, a representative IFA, Patrick Connolly, said: “We are in agreement with any sensible proposals to abolish IHT. The current IHT system is overly complicated, and the government has manipulated the rules so that more and more people are caught in the IHT net. Unfortunately it tends to be those that own a property or have managed to build assets through their lifetime, usually through hard work, that are penalised, while the super-rich, who in theory should be paying more, manage to escape the net”.
He added: “This is an unfair tax that, unless radical change is made, will continue to hit more and more ‘average’ people. These people, quite frankly, pay enough tax anyway”.
The Economic Review also proposed scrapping the three billion pound sterling stamp duty on shares, cutting eight billion pounds sterling in the headline rate corporation tax from 30 per cent to 25 per cent and reducing stamp duty on property to the tune of 10 billion pounds sterling.
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