Homeowners '£10 billion' worse off

Wednesday, 25 January 2006 12:00 AM

The burden of inheritance tax and stamp duty has left homeowners billions of pounds a year worse off than they were twelve years ago.

This, combined with the removal of tax relief on mortgage interest, means homeowners are £10 billion a year worse off than they were in 1994, according to the Council of Mortgage Lenders.

Then, support paid to homeowners through tax relief on mortgage interest outweighed their payments of stamp duty and inheritance tax, meaning homeowners collectively received £2.6 billion from the government.

By 2004/05, however, the abolition of tax relief on mortgage interest and the increase in the amount homeowners paid in stamp duty and inheritance tax meant they were net losers, collectively paying £7.5 billion to the government.

House prices have tripled since 1994, but the inheritance tax and stamp duty thresholds do not reflect this rise.

The chancellor Gordon Brown last year increased the lower threshold at which stamp duty is paid from £60,000 to £120,000, but government figures show that the price of an average house is now £186,431.

On inheritance tax, the amount paid on residential property left in people's estates has more than doubled in the last ten years and now accounts for at least 35 per cent of inheritance tax revenue, the CML writes in its newsletter.

The CML wants to see both stamp duty and inheritance tax thresholds indexed in line with house price inflation.

"The failure to index thresholds for both inheritance tax and stamp duty means that the tax burden on homeowners has grown significantly in recent years," said Bob Pannell, CML's head of research.

"This sits oddly with the government's stated goal of extending homeownership to three-quarters of the population."

Had the 1997 inheritance tax threshold of £215,000 been increased to reflect house price inflation, it would now stand at £500,000 instead of its current level of £275,000.

Unless this is changed the CML suggests that the number of people potentially liable for inheritance tax could rise by two-thirds to 3.6 million by 2009.

Mr Pannell added: "One of the iniquities of inheritance tax is that the government is taxing growing numbers of homeowners at 40 per cent when they die even when they have never been higher-rate taxpayers during their lifetime."

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