Fiscal policy has left home-owners more than £10bn a year worse off than they were in 1994, according to the Council of Mortgage Lenders (CML).
Twelve years ago, tax relief on mortgage interest and income support paid to home-owners outweighed their payments of Stamp Duty and inheritance tax (IHT) to the extent that they were net 'gainers' from the government to the tune of £2.6bn.
But, says the CML, by last year tax relief on mortgage interest had been abolished and the amount home-owners paid in Stamp Duty and IHT had risen so steeply it dwarfed the amount they received in income support by £7.5bn.
While exact figures on the amount of IHT paid on property are not available, the CML estimates the amount of tax paid on residential property left in an individual’s estate has more than doubled in the last 10 years and now accounts for at least 35% of IHT revenue.
The amount of tax paid on estates - across all assets, not just property - has more than doubled from £1.4bn to £2.9bn in the 10 years to 2005, it adds.
The CML argues the reason for the strong rise in the amount of IHT paid on residential property is the failure to index allowances in line with house price inflation. If the 1997 IHT threshold of £215,000 had been increased to reflect house price inflation, it would now stand at more than £500,000 instead of its current level of £275,000, it claims.
Without a change in policy, there is likely to be a further dramatic rise in the number of estates liable for IHT in the next few years. Since 2000, the value of residential property in estates worth more than £200,000 has trebled from less than £4bn to around £12bn. One estimate suggests the number of people potentially liable for IHT could rise by two-thirds to 3.6 million by 2009.
Bob Pannell, the CML's head of research says the failure to index thresholds for both inheritance tax and stamp duty is at odds with the government's stated goal of extending home-ownership to three-quarters of the population.
Pannell says: "One of the iniquities of inheritance tax is that the government is taxing growing numbers of home-owners at 40% when they die even when they have never been higher-rate tax-payers during their lifetime."
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Matthew West on 020 7484 9893 or email [email protected].IFAonline
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