The 2005 Budget and inheritance tax: the Chancellor has done enough?

Introduction

'The government's economic objective is to build a strong economy and a fair society, where there is opportunity and security for all. "

So reads the opening statement of the Labour government budget for 2005. But the word 'fair' is wide out of place when considering the impact of inheritance tax on an increasing number of homeowners in recent years.

The inheritance tax problem

In recent years inheritance tax ceased to be the 'rich tax' or 'voluntary' tax which used to be. The cause of the problem was the increasing scale of house prices resulting in property values which far exceed the Nil Rate Band exemption for inheritance tax.

Research conducted by stockbrokers Brewin Dolphin, there are about 2.4 million homes across the UK are now valued above the £ 263,000 threshold for inheritance tax, before taking any other activity considered. And one in five people anticipating an inheritance have no idea that anything above the threshold will be subject to 40% tax.

In summary, the number of homes sold that were above the inheritance tax threshold has risen from 3% in 1994 to 14% in 2004 and the government has grossed a staggering £ 3.3 billion from inheritance tax 1997!

The 2005 budget

The inheritance tax issue was a major concern for Chancellor Gordon Brown, after several professional associations have underlined the need for the threshold to be increased. After hearing the arguments the Chancellor did just that.

The current limit Nil rate band is £ 263,000 and the clerk announced that this should be increased to £ 275,000 for next fiscal year 2005/2006 and then further increased to £ 285,000 and £ 300,000 the next two years.
As a result of these increases, the Chancellor said that 94% of assets would not pay inheritance tax. So has the Chancellor done enough?

Increase appropriate?

Are increases in the inheritance tax threshold good enough? If they were increased by more? And 'certainly true that previous inheritance tax increases have not been so strong, the increases are generally in line with current inflation rates. However, this budget has seen an increase that is well above inflation.

On the other hand, the argument is that the large increase in house prices necessitated such an increase, and this may not be sufficient. The Halifax Building Society has calculated that if the threshold increased the inheritance tax in line with inflation in housing prices over the past 10 years, so the current threshold would be sitting at £ 390,000 - much less than the figure announced by Gordon Brown.

Conclusion: Budget Blues

So was this a ',' budget bad 'in terms of inheritance tax? Not entirely.
Any increase in the nil rate band is welcomed as it frees some of those caught in the inheritance tax net. Simon Massey (partner with accountancy firm Menzies) told BBC News, "The increase in the threshold of inheritance tax is a long way above inflation and is greatly appreciated ... It 's nice to see something being done. "

Thus, while the increase may not be exactly in line with the current situation of housing prices, will certainly be a relief for many, and any increase is better than no increase at all.

JsByrne
LLB (Hons) PGDip.LPc.
www.Draft-Your-Will.com