Despite the Budget yesterday initially seeming neutral for high net worths, it has become clear that George Osborne included an incendiary measure increasing taxes on entrepreneurs and the wealthy
Despite the Budget yesterday initially seeming neutral for high net worths, it has become clear that George Osborne included an incendiary measure increasing taxes on entrepreneurs and the wealthy.
The change is that whereas now only the unmortgaged bit of your house counts as an asset towards inheritance tax, soon the whole value of your house will count. This is the case if you've used the borrowed money for certain purposes, including to invest in your business, so this measure could discourage entrepreneurialism.
Lawyer Damian Bloom, a partner, at Berwin Leighton Paisner, criticised the government, saying it had aimed this change at people who used the current rule to lower inheritance tax, but that it would affect entrepreneurs: 'In effect this is another anti-avoidance provision that appears badly targeted with unintended consequences.'
Bloom added that any increase in inheritance tax would likely be offset by a decrease in revenue from entrepreneurs' new businesses.
OTHERS HAVE SEEN it as an attack on a legitimate form of tax planning. Glen Atchison, head of the private client client group at law firm Harbottle & Lewis, said this was 'one of the more surprising announcements': it 'appears to be an attack on inheritance tax planning for both those domiciled in the UK and non-domiciliaries that use debt, a technique that many may have considered to be fairly unaggressive and sensible tax mitigation.'
This comes as a double blow to non-doms. Non-doms are already being forced to change the way they own UK residential property to avoid swingeing new tax rates, making them liable for more inheritance tax unless they want to pay the new 15 per cent annual charge on houses over £2 million.
Now, they won't be able to borrow against those homes to decrease their already-increased inheritance tax liability. While few will be weeping into their one-penny-a-pint-cheaper beer, if this affects entrepreneurs, it could be bad for Britain as a whole.
A FURTHER BLOW in the Budget regarding inheritance tax has been noted: the chancellor has extended the freeze on the inheritance tax threshold from 2015 to 2018. That means that many individuals will become liable for inheritance tax as inflation increases their estates but the band does not rise.
It has been at £325,000 since 2009 and should now, with inflation, be £362,000, according to Canada Life; by 2019, it should be £434,000, meaning an extra £43,600 will be payable. With this measure and the change in what you can write off against inheritance tax, it looks like the government sees wealthy families' estates as a fruitful source of revenue.