Greater London breaches IHT threshold

Published 31st Jul 2007

It was only a matter of time before house prices in the big smoke soared through the new Inheritance Tax (IHT) threshold, giving expectant heirs a nasty surprise
London’s house prices are both a boon and a burden for the capital’s inhabitants. Those already on the ladder happily sit by and watch their investment flourish, whilst unfortunate first-time buyers find it increasingly difficult to get a leg up.

However a huge number of homeowners are now singing a different tune after average prices rocketed to £313,122 in the second quarter of this year and broke through the new IHT barrier.

One huge criticism of the government’s attitude towards the housing market is the way it has seemingly swept the issue of property taxation under the carpet. The Capital Gains Tax (CGT), Stamp Duty and IHT thresholds have all failed to keep pace with house price inflation over the past decade.

The IHT threshold has only increased by 95 per cent, despite the 219 per cent increase in house prices since 1995/96. If both had increased at the same rate then the IHT threshold would now sit two-thirds above its current level at £490,000. The story is the same for both CGT and stamp duty, with the latter’s lower limit remaining unchanged since 1997.

It is not only just London that’s feeling the strain though as the average house price in the South East rose above the £250,000 stamp duty barrier for the first time, hitting £259,904. This means that someone purchasing a home at the region’s average price in the second quarter of 2007 would pay £7,797 in stamp duty, a huge £5,302 more than one buying a property at the region's average price of £249,471 at the start of the year.

"The typical homebuyer in London and the South East, in particular, faces a rising tax burden due to the government's continuing failure to increase the inheritance tax and stamp duty thresholds in line with house price inflation,” said Tim Crawford, group economist at Bank of Scotland International.

"We call on the government to raise the stamp duty thresholds and the inheritance tax threshold in line with the increase in house prices over the past decade. We believe the government also should commit to index link all property related tax thresholds to house price inflation in the future."
By Ariane Buteux

Source: ' What Mortgage '

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