The Government plans to close a loophole retrospectively which has helped homeowners to avoid inheritance tax.
Homeloan schemes have allowed homeowners who would have been subject to inheritance tax to sell their homes to a trust in return for an IOU. The IOU would then be passed on to their children through another trust and the parents would be able to continue living in the home.
But Chancellor Gordon Brown plans to force homeowners either to dismantle the scheme or pay income tax on the estimated benefit of remaining in the home.
An Inland Revenue consultation paper published with last week's pre-Budget report says homeowners have until April 2005 to dismantle their plans.
The new rule will be applied retrospectively to homeowners who took out the scheme years ago. Brokers say this is another stealth tax from the Government. Some believe it will affect Middle England rather than very wealthy people and estimate that over 20,000 homeowners will be hit.
Others say the loophole has mainly been used by high-net-worth clients as a high up-front fee of about £10,000 would put off many prospective users.
Brokers hope that in 18 months they can come up with a replacement scheme.
Hamptons International Mortgages managing director Kevin Duffy says:
“This is par for the course from our stealth-taxing Government. It is going to affect far more people than the Government cares to admit or wants us to be aware of.”
Wentworth Rose southern regional manager Mike Baggaley says: “The retrospective application is a bit surprising as other schemes that the Government has closed have been from that point onwards.”