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FactCheck: do Tory tax cuts add up?

By Channel 4 News

Updated on 02 October 2007

George Osborne has promised sweeping cuts on Inheritance Tax and Stamp Duty, paid for by charging non-residents in Britain.

The claim

"We will take 10 million people out of these taxes on aspiration [inheritance tax and stamp duty]."
George Osborne, shadow chancellor, speech to Conservative party conference, 1 October 2007

The background

The Tories are using their annual conference to cast themselves as the party of tax cuts - and the party that will benefit hard-working, ordinary families.

The shadow chancellor claimed to offer fully costed plans to make things easier for first-time buyers and families liable to pay inheritance tax. Soaring house prices since Labour came to power have had implications for the value for assets liable for death duties, and meant that more people are liable to pay stamp duty when buying a house.

The Conservatives reckon that raising the stamp duty threshold to £250,000 for first time buyers will benefit 200,000 people a year (adding up to one million over the course of a five-year parliament), at a cost of £400m. And raising the inheritance tax threshold - currently £300,000 - to £1m would cost £3.1bn a year.

To pay for these cuts, the party wants to bring in a flat-rate levy of £25,000 on non-domiciled residents - people who live in Britain but aren't classed as British residents, meaning they aren't liable for UK tax.

Do the promises add up?

The analysis

First, let's look at the main money-making plan - the tax on non-domiciled residents. The Conservatives reckon that, at a cautious estimate, 150,000 residents would pay the levy, raising £3.5bn.

Cautious or not, clouds of uncertainty billow around this part of the equation. As Carl Emmerson, a deputy director of the independent Institute for Fiscal Studies points out, not only do we not know how many non-domiciles there are, it's also hard to say how many of them would choose to stay in the country if the Tories had their levy-levying way.

"They may all pay and there may turn out to be more here than they assume," said Emmerson. "Or they may prefer to go and pay tax on their foreign income."

Now let's look at the Conservatives' costed cuts. Raising the stamp duty threshold looks likely, over five years, to benefit the million people that the Tories claim.


But the maths behind those cashing in on the inheritance tax changes is far more sketchy.

But the maths behind those cashing in on the inheritance tax changes is far more sketchy. The Tories claim that Labour's inheritance tax net ensnares nearly 40 per cent of homes. This figure is based on the number of people who are currently estimated to be liable for the tax, rather than the number that are currently paying it - and it's a pretty big disparity.

In 2006, 18 per cent of properties in England were valued at more than the contemporary inheritance-tax threshold (£285,000). But in the same year only 6 per cent of estates were liable to inheritance tax, suggesting it's a tax hitting the richest section of the population, rather than the wide sting the Tories are trying to suggest.

Why such a difference? It could be that there are lots of people in their fifties and sixties who have a lot of wealth because of the value of their homes. However, this doesn't mean that they would necessarily have that much when they die - they may give it away, or spend it on long-term care, for example.

In their costed calculations, however, the Conservatives have used the current inheritance tax take - the £3.1bn paid by 6 per cent of households.

The verdict

The Tories are using two different slices of the cake when it comes to inheritance tax. They claim their changes would benefit far more people than currently pay the tax, but when working out how to fund the tax change, they look at the smaller figure of the actual money raised.

If it were the case that more than a third of families paid the tax under Labour, the amount of money they would have to find to fund the change would be far, far bigger.

And the biggest potential hole in the Tories' plans is the assumption that the money to pay for their cuts would be covered by the new levy on non-domiciled residents - for which authoritative figures just aren't available.

FactCheck rating: 3

How ratings work

Every time a FactCheck article is published we'll give it a rating from zero to five.

The lower end of the scale indicates that the claim in question largerly checks out, while the upper end of the scale suggests misrepresentation, exaggeration, a massaging of statistics and/or language.

In the unlikely event that we award a 5 out of 5, our factcheckers have concluded that the claim under examination has absolutely no basis in fact.

Sources

George Osborne: It's time for aspiration
Inheritance tax receipts - HMRC
Hansard: Inheritance tax, 25 June 2007
Institute for Fiscal Studies

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