IHT Debate Heats Up

by Jason Gorringe, Tax-News.com, London

25 August 2006

It appears that Blairite MP and former cabinet minister, Stephen Byers may have opened a bigger can of worms than at first anticipated with his recent assertion that inheritance tax should be abolished in the UK.

Recent research conducted by the Halifax building society, based on data from HM Revenue and Customs, has shown that the total number of estates paying inheritance tax (IHT) rose by 72% over the five years to 2003/04 to more than 30,000.

As the IHT threshold, currently GBP285,000, fails to keep pace with increasing house prices, the government's own estimates suggest that the number of estates caught in the IHT net will rise by a further 22% by the end of 2006/7.

Halifax's research also found that the less affluent households are being hit harder than the wealthy. The number of estates with a value of less than GBP500,000 paying IHT rose by 75% over the five years to 2003/04 to 21,750. These estates now account for 71% of all estates paying IHT.

Last financial year (2005/06) the government collected GBP3.3 billion in IHT revenue and projects GBP3.6 billion in revenue in the current financial year (2006/07). Over the past five years there has been a 49% increase in IHT revenue.

Writing in the Sunday Telegraph last weekend, Mr Byers urged the abolition of IHT, calling the levy a "penalty on hard work, thrift and enterprise".

He went on to add that IHT is "unfair and punitive" and a form of "double taxation" because it taxes assets acquired with income which has already been taxed.

The timing of Byers's assertion has been viewed as significant because some within the Labour Party are interpreting his remarks as a veiled challenge on Chancellor of the Exchequer Gordon Brown, whose remit includes taxation and who is widely expected to succeed Blair as Prime Minster in the next year to eighteen months.

Weighing in on the issue on Tuesday, Shadow Chancellor George Osborne revealed that the Tories are looking at ways to reduce the burden imposed by the tax, but would not go so far as to abolish it completely.

Speaking on UK radio, Mr Osborne argued that it would be "irresponsible" of him to commit the Conservative Party to such a course of action, and observed that the government would be hard pushed to replace the revenue which would be lost by its abolition.

In this assertion, and perhaps for the first time, the Tory MP was supported by the Brown-led Treasury, which earlier this week issued an unequivocal riposte to Byers's argument, pointing out through statements published in various press reports that the tax is both fair, affecting only a small percentage of estates, and an integral part of the Chancellor's budget.

IHT is expected to yield about GBP3.6 billion in revenues this year, the equivalent of a penny on the rate of income tax.

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