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Inheritance Tax

Volume 448: debated on Thursday 13 July 2006

8. If he will assess the merits of linking inheritance tax thresholds to median house prices in each council area. (84769)

This year’s Budget announced above-inflation increases in the inheritance tax threshold, with the threshold rising to £325,000 by the end of the current Parliament. Even given rising house prices, most homes are below the threshold. A link to house prices in each area would be very difficult and complex to administer, and I think that it would also be unfair.

What should I tell my constituent, who lives in a terraced house in Battersea and fears that her daughter, who is also her full-time carer, would face a bill for more than £100,000? Average house prices in my borough are still £80,000 above the threshold, and even given the increases—enormously welcome though they are—they will still be some £35,000 above it. Does not my hon. Friend, as a London Member, share my fear that families will no longer be able to live in the family home when their parents die, and that families will disperse and communities break up?

I know that my hon. Friend will agree that it is right for the estates of better-off people to contribute to wider welfare—and only 6 per cent. of estates paid inheritance tax last year. I think that he will also accept my point about the complexity that would arise if the threshold varied constantly, depending on what had happened to house prices, and if it were different in every area. In cases such as the one that he has described, equity release might help. I think that there would be a real problem if estates with no residential properties but otherwise identical paid different amounts of tax in different parts of the country.

The Minister may have dealt with the main point made by his hon. Friend, but he has not dealt with the supplementary point. What happens if a 90-year-old mother living with two 60-year-old retired daughters has a house whose value is above the threshold? How can she pass it on, without the benefits of civil partnership?

The hon. Gentleman is one of those who would agree that it is right that the estates of wealthy people should contribute to the wider wealth; I know of his interest in addressing poverty. In the situation that he describes, perhaps equity release could help. It is right that larger estates should contribute to the wider welfare, and that is what inheritance tax allows to happen.

Will my hon. Friend review the threshold annually? Rising house prices mean that it is Mr. and Mrs. Average who are now being caught by inheritance tax, whereas the wealthiest have the best advisers, set up trust funds, hold their money abroad and do not pay.

I can reassure my hon. Friend that the situation is reviewed annually, and we have committed to above-inflation indexing up to £325,000 by 2009-10. Where there are loopholes, we will continue to take steps to close them, and further progress was made on that front in the Finance Bill this year.