Changes to inheritance tax in Britain could affect Irish property owners

INHERITANCE tax should be fairer and rates should be hiked to 50% for the very wealthy, according to a leading British think-tank.

The Institute for Public Policy and Research (IPPR) yesterday proposed a series of radical reforms to the inheritance tax regime in Britain, which if accepted by parliament could affect Irish people who own property in Britain or Northern Ireland.

The IPPR's proposals would raise up to stg£150 million (€225 million) for the UK Treasury but would mean that nine out of 10 taxpayers would end up paying less inheritance tax.

The group wants a base rate of 22%, with higher bands of 40% and 50% for inheritances exceeding thresholds of £288,000 (€432,000) and £763,000 (€1.1m). Ireland currently applies a blanket rate of 20% to inheritances from parents of €456,000 or more. Inheritances below this level attract no tax.

Outgoing finance minister Charlie McCreevy controversially cut the rate from 40% in one of his first initiatives after taking the finance portfolio in 1997.

The cut was part of an overall reform of the regime governing Capital Gains Tax, which is levied on profits on sales of assets such as shares and investment property, and Capital Acquisitions Tax, which covers gifts and inheritances.

Inheritance tax has also been a controversial topic in America. The Bush administration was heavily criticised by opposition politicians for its programme that aims to eliminate the tax by 2010. IPPR research claimed a third of total wealth in Britain was owned by just 2% of the population and that for every millionaire, there were 60 people with wealth of less than stg£5,000 (€7,500). Exemptions to inheritance tax are granted in the case of estates passed on to a spouse.

"A fairer inheritance tax would see the very wealthy, who are comfortably over the threshold, pay more, while the vast majority of families that are currently taxed would pay less," said IPPR researcher Dominic Maxwell.

"The past decade has seen a worrying rise in wealth inequality. Inheritance tax reform is only part of the response needed but it would certainly help to protect the principle that government can and should seek to moderate wider wealth inequalities," he said.