Tories face inheritance tax questions

George Osborne, shadow chancellor, recieved a letter from Labour yesterday questioning their figures

Wednesday, 03, Sep 2008 05:34

Questions have been raised over Conservative plans to set a £2 million threshold on inheritance tax.

The Tories' original proposal – to set the threshold at £1 million – appeared to represent double that number yesterday when shadow Commons leader Theresa May admitted the threshold applied to people, not couples.

"I am happy to confirm that our inheritance tax proposal will introduce a threshold of £1 million per person (not per couple)," she wrote to a member of the public.

"This means that it would be possible for a married couple to enjoy a threshold of £2 million."

The revelation provoked a furious reaction from Labour, who accused the Tories of wanting to cut taxes for the super-rich.

"David Cameron has clearly tried to hide this but now we know the Tories' priority is to give money to a few thousand of the wealthiest estates in the country," said Yvette Cooper, Labour's chief secretary to the Treasury.

Critics have also pointed to the usefulness of the proposals to the Conservative shadow Cabinet themselves, 19 of whom are millionaires.

But now questions are being asked of the Conservative's costings. The Tories claim all the money for the plan can be garnered from a £250,000 levy on non-domiciles, but those figures are coming under sustained scrutiny.

Conservatives say there are around 150,000 non-doms in the UK, basing their figures on average yearly increases to the 2004/05 figures. A full-pay rate of their levy would therefore provide £3.75 billion, taking into account the assumption that 20,000 of the non-doms would only pay £12,500 each because of a lower income.

A Tory source told politics.co.uk Labour changes to non-domicile status would reduce the income to £2.8 billion, still leaving enough money to fund a rise of the stamp duty threshold to £250,000.

They say their figures are considerably less than the £4.2 billion estimated by Richard Murphy at Tax Research UK for the TUC as the potential revenues from abolishing non-domicile status altogether.

But analysts say the figures assume all non-doms will remain in the UK if a levy is introduced – a hotly contested assumption.

Ms Cooper wrote to George Osborne, shadow chancellor, yesterday asking for clarification of the proposals.

"Can you confirm that Theresa May was speaking on behalf of the shadow Cabinet when she confirmed that your £1 million inheritance tax allowance would be transferable?" she wrote.

"How much will this policy cost?" she continued.

"Are you still committed to funding it through a levy on non-doms?"

Labour sources contacted by politics.co.uk said they have not yet received a reply from Mr Osborne.

But a Tory party spokesman insisted there had been no change in the policy since it was announced during last year's Conservative party conference.

"We have always been clear that we would retain the transferable element of the government’s inheritance tax changes of October 2007," he said.

"George Osborne said so publicly at the time of the pre-budget report and even before then, many families used a trust system to benefit from a transferable inheritance tax allowance."

Regardless of the sums, analysts continue to believe the Tories have hit upon an electoral success story.

Michael Johnson, research fellow at IPPR North, said most people hate the tax, regardless of whether they have to pay it or not.

"One thing we do know about inheritance tax is it's very unpopular," he told politics.co.uk.

"People hate the idea of it. It comes at an awkward time for families anyway, after they've just had to deal with a loss. There's the psychology of it, the emotional attachment."

Labour is currently facing its own questions about costing, after failing to explain how it would pay for the £600 million lost to the Treasury by its changes to the stamp duty threshold yesterday.