Page last updated at 07:33 GMT, Saturday, 15 August 2009 08:33 UK

Bereaved face late tax fee rise

Thatched cottage
Inheritance tax is payable on estates worth more than £325,000

Bereaved families will have to pay 3% interest on late payments of inheritance tax from next month, HM Revenue and Customs has confirmed.

Such payments are due within six months of a death. Interest on late payments, which roughly followed Bank of England base rate, fell to zero in March.

Meanwhile, the Treasury will set the interest rate it pays when too much tax has been levied at 0.5%.

The Taxpayers' Alliance described the moves as "desperate" and "unfair".

Inheritance tax is levied on estates, including assets such as property, possessions, money and investments, worth a total of more than £325,000.

The value of the estate above that threshold is taxed at 40%.

It's a desperate move and a seriously retrograde step for the government
Susie Squire, Taxpayers' Alliance

In a statement, HM Revenue and Customs (HMRC) said: "Interest is not a penalty but compensation for tax paid late.

"We are streamlining the rates charged and paid for interest to simplify and make things fairer for customers.

"This has been subject to extensive consultation over the last 18 months and has been largely welcomed by customer groups and their representatives.

"The alignment of rates that will take place in September will mean that all tax paid late is subject to interest at the same rate, so ensuring all taxpayers are treated equally.

"And in the interest of fairness we will also be introducing a repayment interest floor, to ensure that any taxpayer overpaying tax will receive interest."

'Unjustifiable'

The interest HMRC pays on refunds will be pegged at one percentage point below the Bank's rate, but this will not go beneath a floor of 0.5%.

Since March, interest on late inheritance tax payments and the interest paid by HMRC on refunds have both stood at zero, while the Bank's base rate stood at 0.5%.

Susie Squire, political director of the Taxpayers' Alliance, said the public would be angry at the changes, which she described as "unjustifiable".

"It's a desperate move and a seriously retrograde step for the government," she said.

"It's basically one rule for them and another for everyone else."

She said the decision was "more about political point-scoring rather than raising any significant revenue" and added it was "feeding the government's addiction to debt, tax and spend".



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