Kicking the politics in to touch

The controversial issue of inheritance tax has often been kicked back and forth with political parties using the much "hated" tax as part of their agenda. But why is it still the consistent weapon of choice within the political sphere?

It has now been more than a year since chancellor Alistair Darling tried to prevent the Conservatives from claiming any glory in the push for the reform of death duties by taking action a week after the Tories pledged to raise the threshold at which inheritance kicks in to £1m.

The chancellor announced that the current £300,000 threshold would be transferable between married couples and people in civil partnerships. It would double to £600,000 and rise to £700,000 by 2010/2011 at an annual cost of £1.4bn by then. He also said the move would be retrospective for 3m widows and widowers.

Having kicked back the political football, Mr Darling rejected the Tory scheme, saying that increasing the threshold to £1m would cost a further £2bn.

Labour sources stressed that Gordon Brown had intended to include the reform of inheritance tax in his Budget in the spring but could not find the money because he decided to cut the basic rate of income tax from 22p to 20p in the pound from next year.

The sources also claimed the chancellor's moves were fairer and more affordable than the Conservative proposals on inheritance tax and "non-doms".

The Conservative's response saw George Osborne, shadow chancellor, describe Labour's package as "a pre-election Budget without the election" and suggested that Labour's move on inheritance tax was "another tax con", saying it was much less generous than the Tory scheme.

So why is IHT still the consistent weapon of choice within the political sphere?

Mike Warburton, tax partner for Grant Thornton UK, believes that the IHT changes are not only detrimental to the political agenda, but will incur dramatic changes for all.

He said: "It is a much bigger issue for the voters than you would expect and heralds a dramatic outcome as it is seen as an unfair tax."

Mr Warburton explained that with mountains of paperwork that needs to be produced and organised - including a death certificate of spouse, and marriage certificate, which all has to be sent 24 months after the deceased has died - it is not as straightforward as is intended.

He said: "It is not a simple process and lots of forms need to be filled in, paperwork needs to be sent and although it is a good in thought, it is not necessarily good in practice.”

This is apparent as, according to HM Revenue & Customs statistics, about 34,000 people paid IHT in 2007/2008.

Also, it is estimated that about 24,000 people will still pay IHT in 2008/2009, a marked decrease in numbers.

Last year's Pre-Budget Report had intended to make the most significant changes to IHT, with the new rules allowing any unused nil-rate band to be claimed on the later death of the surviving spouse or civil partner.