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Proposed changes to Inheritance Tax and new capital taxes

In our last blog we examined the Conservative Party’s stated intention to introduce a new Inheritance Tax (IHT) relief applicable to the main residence. In this blog we take a look at the other political parties’ plans with regard to IHT and any proposed new capital taxes.

The Green Party has the most to say about IHT and has more detail in its proposals than the other parties. The Green Party says that it would get rid of IHT altogether (as indeed do UKIP) but, unlike UKIP, the Greens give details of a proposed new capital tax, an accessions tax. This was a concept first discussed by the Liberal Democrats several years ago and forms the basis of capital taxation in other jurisdictions.

Under the Greens’ proposals the level of tax payable does not depend on the value transferred, as with IHT, but on the recipient’s wealth. If the recipient owns assets of less than £200,000 no tax would be payable. This compares say with the French system where the amount of tax payable differs depending on the relationship of the recipient to the person making the gift.

The Green Party say that they would abolish the ability to make tax free gifts by surviving the gift by seven years and instead make lifetime gifts subject to the accessions tax with an exemption for small gifts. Supporters of the concept of an accessions tax say that it would encourage people to spread their wealth around.

The Greens also say that they would tighten up the tax treatment of certain trusts which are “widely used for IHT purposes”. We would add that trusts are also widely used for protection purposes and that the changes to trust taxation introduced in 2006 has already tightened up the tax situation in this area.

Finally the Greens would also bring in an annual Wealth Tax for those individuals with wealth exceeding £3 million. Both the Labour Party and the Liberal Democrats propose a version of a wealth tax but applicable only to property rather than all assets as proposed by the Greens. The Labour Party call their proposed tax the Mansion tax whilst the LibDems call their tax “a High Value Property Levy” but, on the details available in the manifestos, only the name differs. Both taxes would apply to properties worth more than £2 million and both would have a threshold which would rise in line with house prices. Only Labour mentions a right to defer the charge for non-higher rate tax payers.

Given that the political commentators tells us that the most likely outcome of the General Election is another coalition, it will be interesting to see what policies emerge from these proposals after May 7th. It does appear, however, that some sort of change to capital taxes is on the horizon.