Inheritance Tax: Residential Accommodation (Hansard, 15 May 1989)

§ The Secretary of State for Trade and Industry (Lord Young of Graffham)
My Lords, the information is not available in precisely the form requested by my noble friend. To exempt all residential property from inheritance tax on death is estimated to cost around £500 million in a full year.

§ Lord Boyd-Carpenter
My Lords, I thank my noble friend for that reply. Is he aware of the fact that the tax on someone's personal home—given the very high valuation based on house property at the moment—is often a serious blow to an individual at a particularly difficult time? Does the Minister not agree that it would be in accordance with the Government's policy of encouraging a nation of home owners to make a concession here?

§ Lord Young of Graffham
My Lords, I appreciate the point that my noble friend makes. The spouse exemption means that neither widows nor widowers need face bills with inheritance taxes. In the case of other beneficiaries who retain the home, tax may be paid by instalments over 10 years. In any circumstance, exempting the residential property from inheritance tax would undesirably narrow the tax base.

Lord Bruce of Donington
My Lords, on the assumption that a fairly large sum were to become 916 available to the Chancellor in such circumstances, would the noble Lord not agree that the first action of any responsible government would be to devote whatever sum might be saved to the relief of the 4 million people in our country who today find themselves far worse off than they were in 1979?

§ Lord Young of Graffham
My Lords, I believe that all Members of your Lordships' House will agree that the noble Lord, Lord Bruce of Donington, has strayed somewhat wide of the point of this Question. A little over £1,090 million is raised by inheritance taxes each year. It is all part of the structure that this Government have evolved since 1979 and which has ensured that the economy of the United Kingdom has restored itself; that people are better off and that we have prudent and sensible government for the first time.

§ Lord Strabolgi
My Lords, will the noble Lord concede that the concession to abolish the inheritance tax between spouses was brought in by a Labour Government and not by the present one?

§ Lord Young of Graffham
My Lords, the Question is about the present Government. I am quite willing to accept that there have been previous governments of our country. In time they have evolved the entire tax base that we have today.

§ Lord Mellish
My Lords, perhaps we may return to the original Question. Is it not a fact that if a person owning a house makes a will in which there is joint ownership of the house, in the event of the death of one of the spouses there is no inheritance tax to be paid? Can the Minister say whether that is right?

§ Lord Young of Graffham
My Lords, it is just over a third of a century since I last practised as a solicitor. That is the kind of question where I believe particular advice is required since circumstances can vary so much from case to case.

§ Lord Boyd-Carpenter
My Lords, as regards my noble friend's argument about narrowing the tax base, is it not a fact that capital gains tax is excluded in the case of a principal home? Will the Minister not agree that that is a very good precedent for dealing similarly with the inheritance tax?

§ Lord Young of Graffham
My Lords, about 660,000 people in our country die each year and only about 4 per cent. of the estates pay an inheritance tax. The vast majority of people come outside that tax. About three-quarters of the estates above the threshold include a residential property, and of those the house-owning estates are rather less than half of the value of the estates. So it comes down to a comparatively small figure.

§ Lord Rees
My Lords, even though the Government are not prepared to contemplate a specific exemption for the principal home, can the Minister say whether in fixing the threshold they will at least take into account the value of the 917 property, which may have diminished unduly in real terms over the past decade?

§ Lord Young of Graffham
My Lords, the basis of the inheritance tax is the value of the property at the time that the estate passes. I do not see how we can fix any other value.

§ Lord Bruce-Gardyne
My Lords, perhaps I may ask my noble friend a question which is slightly in conflict with those that have so far been asked. Can he say whether it is true that, once we have lost the domestic rate, apart from the inheritance tax the family home in this country will carry no burden of taxation whatsoever? Does the Minister not agree that that is fairly unusual by international standards? Is it not possible that that distorts the pattern of asset ownership in this country and is it not possible—greatly daring!—that in these circumstances there is some kind of a case for the reintroduction of schedule A?

§ Lord Young of Graffham
My Lords, my noble friend will not be in the least surprised if I say to him that I feel his questions are a little wide of the Question on the Order Paper. He can expect no less from me.

§ Lord Northfield
My Lords, the noble Lord said that the tax can be levied only on the basis of valuation. Is he aware that with landed property—tenanted farms, and so on—a percentage of that valuation is taken for taxation purposes? To meet the noble Lord's point, could not, for example, the first 50 per cent. of the valuation be free of inheritance tax? There are precedents.

§ Lord Young of Graffham
My Lords, this also applies in the case of residential homes. For those beneficiaries who retain the home, tax can be paid over 10 years. That, again, is a difference.

§ Lord Campbell of Alloway
My Lords, is it right that the matter of the family home should be complicated by considerations such as whether it is in joint names or whether a will has been made and what is the precise drafting of the will? Could not further consideration be given to the broad merits and fairness of the position?

§ Lord Young of Graffham
My Lords, it is difficult to disentangle these matters. Legal requirements, the wording of a will and whether it is a gift may change the whole basis. However, I have heard what my noble friend has said and I shall pass his remarks on to my right honourable friend the Chancellor of the Exchequer for his consideration.

The Earl of Halsbury
My Lords, can the noble Lord tell the House a little more about payment by instalments? If there are several beneficiaries—let us say four children—and one of them defaults on an instalment plan, what will happen to the liability of the others?

§ Lord Young of Graffham
My Lords, I can do no more than repeat an answer I gave to an earlier supplementary question. I am no longer in practice, but I am sure that if the noble Earl wishes to take advice he will get an answer to his; question.