£10bn tax hikes hit homeowners

Changes in tax policy mean UK homeowners are now £10 billion a year worse off than they were in 1994, new figures show.

Increasing house prices mean that while 12 years ago mortgage holders were effectively given £2.6 billion support by the government – through income support and tax relief on mortgage interest – they now hand the Treasury £7.5 billion a year, the Council of Mortgage Lenders (CML) finds.

Data released today shows that in 2004/2005, with tax relief on mortgage interest abolished and the amount homeowners pay in stamp duty and inheritance tax up, mortgage holders are effectively £10 billion worse off.

Rising house prices have been the principal driver of this increase in costs – as the lower thresholds for inheritance tax and stamp duty have not accelerated in line with soaring property values.

"The failure to index thresholds for both inheritance tax and stamp duty means that the tax burden on home-owners has grown significantly in recent years," said Bob Pannell, CML head of research.

"This sits oddly with the government's stated goal of extending home-ownership to three-quarters of the population.

"One of the iniquities of inheritance tax is that the government is taxing growing numbers of homeowners at 40 per cent when they die even when they have never been higher-rate tax-payers during their lifetime."

The CML calculates that in the last ten years the amount paid in inheritance tax from peoples' estates has more than doubled, with property now accounting for at least 35 per cent of all inheritance tax revenue at £2.9 billion.

If the 1997 inheritance tax threshold had increased in line with house price growth it would stand at £500,000 instead of its current level of £275,000.

The CML predicts that there will be further dramatic rises in the number of estates liable for inheritance tax over the next few years.

One estimate points to 3.6 million Britons being hit by the tax in 2009, an increase of over 60 per cent.

In March the chancellor acted to raise the lower limit at which stamp duty land tax is paid from £60,000 to £120,000. But Halifax calculated that – to keep pace with house price rises until that point – the lower threshold at which the tax is paid should have been raised to £157,000.

Before this March's Budget there had been no change to the lower threshold for stamp duty since 1993, when the average house in the UK cost £62,000.