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Swapping inheritance tax with mansion tax in proposal

Date: (20 September 2012)    |    

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If everything goes according to the plans of Liberal Democrats then the inheritance tax on property would be scrapped in exchange for a new mansion tax on large houses
The proposals would exempt people from inheritance tax on properties where owners agreed to pay more council tax.
They are to discuss such a proposal at the Lib Dem party’s conference later this month following Nick Clegg’s call last week for new taxes on wealth.
The exemption of inheritance tax might make the long standing Lib Dem plan for a mansion tax on large houses more acceptable to Conservatives who have been against any such tax.
The Lib Dems have a longstanding commitment to increase tax on wealth and inheritance tax, which raises more than £3.2 billion a year for the Treasury which is the biggest wealth tax in the current tax system.
But some Lib Dems believe IHT was unfair and inefficient and should be scrapped or significantly overhauled.
A Lib Dem policy paper on tax circulated among MPs and activists says that IHT was a way of double taxation as it taxed funds on which income tax has already been paid.
IHT was also widely avoided through legal means such as pre-death gifts, the paper says, proposing a major overhaul of the rules.
Setting out options for change, the paper suggests that the replacement of IHT with location value taxes, thus resolving the double taxation issue.
For example a ‘Mansion Tax’ that would be less avoidable - collected via extra council tax bands.”
The paper says the party has to consider asking questions whether it should offer people the ability to opt-out of inheritance tax at death by paying higher rates of other taxes before death (such as higher council tax on their house)?
The paper also suggests that IHT could be significantly changed. Instead of recipient paying death duties on the value of assets inherited, a new tax would be levied on any income arising from those assets such as rent from property or dividends from shares.
Proposals to lift the IHT threshold to £1 million were vital to the Conservatives’ political fortunes in opposition, helping persuade Gordon Brown not to call an early general election in 2007.
However, since entering government, senior Tories have done little towards implementing those promises and the threshold remains at £325,000 for each member of a married couple.