Unfair, because the richest people can avoid the tax by giving money away to their children well before they die.   Not an option available to those of more modest means because they actually need the money to live on.   Or the wealthy put their money into trusts designed by clever lawyers where the tax liability is minimised, if not eliminated.  

The simplest way of dealing with this injustice would be to bring in a new relief just like the one for Capital Gains Tax.   If you sell the house you live in and make a profit (as most people have done in recent years), you pay no tax on the gain.   This is called Principal Private Residence relief.   If there was a similar relief for Inheritance Tax, the injustice would be removed at a stroke.   But then so, I suppose, would most of Gordon Brown’s revenue.   And the fact is that, with the big increase in house prices, it has become a nice little earner.

So, what can be done?   The answer is that every homeowner should sit down with his or her financial adviser and draw up a list of assets and liabilities deduct £275,000 and multiply this amount by 40%.   That is their tax bill if they die today.  And there are things that can be done about it.   For example, it is important to have an up-to-date and tax-efficient will.   Both the spouses in a marriage and both the partners in a gay civil partnership are entitled to the £275,000 allowance.   If the wills say that the whole estate of the one goes to the other on death, then one allowance is completely wasted and tax of £110,000 is thrown down the drain of No 11 Downing Street.

There are other measures that can be taken.   The vital thing is that property owners should take good quality advice from a qualified accountant or independent investment adviser.   Fees of a few thousand pounds could save many more in tax.

The same is true of stamp duty.   Here again, Gordon Brown has introduced what seems to be a significant increase in the threshold for property sales to £125,000.   But how many houses or flats sell for less than this these days?   The fact is that it is only a few years since the average property sale attracted no stamp duty.   It was a tax for the wealthy.   Now it is a tax for almost every homebuyer.

It comes as no surprise to learn that many more houses sell for just under £250,000 than just over because this is one of the points at which the rate of stamp duty rises.   You can always sell the carpets and curtains separately and, as long you attribute a sensible sum to them, this is unlikely to be challenged.   And, when somebody sells a business that includes a property, the total price can perfectly legitimately be allocated partly to the goodwill, partly to the fixed assets and partly to the land and buildings.   Stamp duty no longer applies to goodwill and so apportioning a realistic element of the sales proceeds to it can often save quite a bit of tax.

Inheritance tax and stamp duty are two stealth taxes of which Gordon Brown must secretly be quite proud.   The buoyancy of the housing market over the last decade has led to a huge increase in their yield.   Which is why professional advisers now spend much more of their time actively seeking ways to mitigate their impact.   Nothing, we are told, is certain in this life except death and taxes.   There is not much we can do about the former but quite a lot – with a bit of help from a good accountant – that we can do about the latter.

Tim Smith is a tax partner at HM Williams Chartered Accountants which has clients ranging from multi-million pound household name organisations to individual taxpapers. The firm has won the Daily Telegraph/ Energis Customer Service Award and the Butterworths Tolley National Award for the Best Tax Team in a Small to Medium Size Firm.

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