Inheritance tax boost for homeowners

http://www.theguardian.com/money/2015/jul/09/inheritance-tax-boost-for-homeowners

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This budget will see George Osborne realise an ambition nearly eight years old – to raise the threshold of inheritance tax to £1m for a couple, provided that their stake includes at least £350,000 in the form of a privately owned residence to add to the existing exemption of £650,000 of their assets. But he remains mistaken in believing that when the tax was introduced, in the form of estate duty in 1894, it was intended only to affect the very rich.

It was levied on all estates over £100 (the equivalent to about £8,100 today) although starting at only 1%. That rate remained unchanged until after the war in 1946, when £100 was worth only about £3,200 currently. But in the last pre-war year, estate duty was paid by 152,700 estates – one in three of all deaths, bringing in £77.5m – almost 15% of all revenue. That is equivalent to £3.6bn at today’s prices. In 2011-12 (the latest year for which full figures are available), just under 16,000 estates paid £3.4bn, contributing less than 3% of tax revenue and representing the same share of deaths.

The main reason for this low revenue is that, contrary to popular impression, inheritance tax is not simply levied on everything you leave over £325,000. If that were the rule then, in 2011-12, almost 30,000 estates would have been charged almost £8bn. Instead, a network of exemptions and allowances – for a surviving spouse; charities; agricultural land; business investment; heritage assets, unquoted shares and relief on losses and sale of assets, resulted in almost £15bn out of assets passing of over £30bn, being exempted, and the effective rate of tax paid being under 10% on the gross value of the 16,000 estates.Harvey ColeWinchester, Hampshire

• Paul Johnson of the Institute for Fiscal Studies has rightly criticised the proposal to scrap inheritance tax below £1m because it will boost house prices (Report, 4 July). However, he has not followed through by saying that inheritance tax adjustment (downwards) is one of the few remaining ways of taxing back the exceptional and unjustified tax freedoms on owner-occupied housing – the boost in house prices works through to raise rental levels – because owner-occupation is the dominant sector in housing, thereby increasing levels of housing benefit, which is then said to be “out of control”.Bernard KilroyHook, Hampshire

• Little comment has been made concerning the introduction of a tax-free allowance for dividends. Taken together with ISA and other reliefs, we are arriving at a world where unearned income and gains will only suffer significant tax through accident or bad management. This favouring of unearned income over earned income (and consumption) is not only inequitable but creates an unsustainable narrowing of our tax base which, together with increasingly adverse impacts on demand, will be economically disastrous in the medium to long term.Colin GarwoodWadebridge, Cornwall