Sir David Davis condems Osborne’s freeze on inheritance tax threshold

As reported in The Daily Mail;

“A former Tory Cabinet minister yesterday launched an extraordinary attack on George Osborne’s decision to freeze the inheritance tax threshold until 2019, saying it was ‘unfair’, damaging to growth and penalised the middle classes.

Lord Forsyth, an adviser on tax to Mr Osborne before the election, said it was ‘very disappointing’ that by freezing the threshold at £325,000, the Chancellor broke a promise made while in opposition to raise it to £1million.

At the time Mr Osborne pledged that ‘in a Conservative Britain, only millionaires will pay death duties’.

As criticism grew over the freeze –intended to help fund reforms of the social care system – former Tory leadership contender David Davis said it would impact ordinary people, especially in the South East of England, where house prices were high.

‘Conservatives should favour ordinary people – and this will impact ordinary people,’ he said. ‘Millionaires won’t be affected, since they will have expensive accountants to look after them.’

In 2007, Mr Osborne’s pledge to lift the threshold to £1million boosted Tory ratings by up to five points and David Cameron’s net rating by 24 points – enough to frighten Gordon Brown out of holding a snap election.

But after Lib Dem opposition the pre-election promise was abandoned in 2010, and the threshold has been frozen since – pulling more people into the tax net.

Mr Osborne had been expected to make modest increases in the threshold before the next election, but it will now remain frozen for at least another six years.

Lord Forsyth, a former Scottish Secretary, said: ‘The thing about inheritance tax is very rich people don’t pay it. They set up trust funds for their children or they buy shares of agricultural land and shelter their assets.

 ‘The only people who pay are the middle classes whose main asset is the roof over their heads.

‘Inheritance tax is unfair. It hits the middle classes and it taxes people twice, because they have already paid tax on the money they used to buy a house.

‘George said he wanted a fairer, lower and flatter tax system – and inheritance tax doesn’t tick the box on fairness. If you are wanting growth, actually you want people to save and invest – and this penalises people for doing that.

‘Those who spend their money on Ferraris and fripperies won’t have to pay inheritance tax, but if you invest and set aside for your children you will.

‘George made a promise to increase the inheritance tax threshold to £1million. So it’s to say the least very disappointing that we should have broken that promise, and it’s hard to see how this squares with the Prime Minister’s declared intention to support the striving classes.’

Mr Davis added: ‘Those who will be affected are ordinary families, particularly in the South East of England, where house prices are expensive.

‘People understood and accepted that dropping the pledge to increase the threshold was part of the coalition deal, even if they didn’t like it.

‘But to see a freeze effectively extended right through the next Parliament is something that will be simply dismaying to a lot of people.’

Mr Davis added that there was a ‘certain irony’ that Mr Osborne was adopting Labour’s approach to funding social care reforms.

Before the election, Labour said it would cap the costs of residential care so people’s homes and savings were protected from care charges after two years by freezing inheritance tax thresholds until 2014-15.

Treasury figures suggest the number of families paying inheritance tax will increase by more than a quarter to help pay for the new care cap. In 2011/12 about 19,000 estates paid inheritance tax.

Treasury sources said the decision to freeze the rate would drag in a further 5,000 families each year – an increase of 26 per cent.

Middle class families who find the estates of their late parents have broken through the £325,000 limit will be the main group affected. Many wealthy families who employ accountants to avoid the tax will continue to pay nothing.

In a critical review of inheritance tax this month, the Institute for Fiscal Studies said: ‘It tends to fall on the moderately wealthy, often with their wealth tied up in a house and no idea how to circumvent the tax, as often as the very richest.’

Matthew Sinclair, of the TaxPayers’ Alliance, said: ‘Inheritance tax is a double tax that unfairly targets families just for having the misfortune of losing a loved one.

‘It’s disgraceful that the Chancellor has gone back on his word.’

Tory MP Mark Pritchard said: ‘Inheritance tax is a regressive tax and in an ideal world we would be increasing the threshold to £1million as we promised.

‘But we don’t live in an ideal, Conservative world. Colleagues are disappointed but also realistic about what we can do given the state of the public finances.’

A Treasury source said: ‘For the first time – after Labour ducked this issue for years – people’s inheritance will now actually be protected in the first place.

’20 per cent of the cost will come from continuing to freeze inheritance tax but for couples this threshold stands at an effective £650,000.

‘An increased allowance is of little use if your assets have already been used to pay for care.'”