Finance Bill

I drew the Committee’s attention to the fact that inheritance duties on large estates have existed in one form or another since 1694, when a tax of five shillings on all estates over £20 was introduced. The principle of such a tax is therefore well established in the United Kingdom. It yielded £3.6 billion last year and makes an important contribution to funding public services. I underline the Government’s view that it is right and fair for such a contribution to come from the largest estates. The nil rate band is set at £300,000 for the current year and, as my right hon. Friend the Chancellor announced last year, that figure will rise faster than forecast inflation in the coming years. Clause 4 provides for a further above-inflation increase in the band to £350,000 in 2010-11. Like the hon. Member for Chipping Barnet (Mrs. Villiers), I was puzzled about the reason for the amendment, but the hon. Member for Falmouth and Camborne (Julia Goldsworthy) explained that it was tabled simply so that we could have a debate. However, if the Liberal Democrats have proposals on the matter—I note that the hon. Member for Twickenham (Dr. Cable) presented some ideas in a speech last week—the House should have an opportunity to discuss them. It is worth outlining the twofold effect of the nil rate band allowance. First, it ensures that every individual can leave a substantial sum to whomever they choose— including, for example, a sister—entirely free of inheritance tax. Secondly, it ensures that the tax is progressive because, for estates above the nil rate band, the effective rate of tax increases with the size of the estate. The number of estates that are liable for inheritance tax was mentioned. As has rightly been said, of approximately 600,000 estates a little under 6 per cent. attracted an inheritance tax liability in the past year. That means that the proportion of estates liable for inheritance tax is about 6 per cent. The remaining 94 per cent. paid no inheritance tax. That may come as a surprise to those who believe what they read in the newspapers, from which one gets the impression that the numbers are rather different. The hon. Member for Chipping Barnet mentioned the proportion 10 years ago, but if one goes back 20 years, to the height of Thatcherism, one finds that the proportion was 5 per cent. The proportion has therefore gone up and down over the years. The consequence of the changes that we have set out for the next few years is that the proportion will stay roughly at the current figure of approximately 6 per cent. of estates. In the last quarter of 2006, the mean house price in the UK was £199,000. The median price—the best measure of the ““typical”” property—was £175,000. The median prices for the south-east and London were £220,000 and £250,000 respectively. All those figures are within this year’s nil rate band. Of course, when a home is owned with a mortgage, that debt will reduce the size of the estate on death The vast majority of property ownership falls well within the inheritance tax nil rate band. It is important to underline those points when the newspapers often give the impression that a large proportion of estates is becoming liable for inheritance tax. That is not the case.