Inheritance tax blow for homeowners

CHANCELLOR Gordon Brown plans to close a loophole on inheritance tax that will hit middle-class families.

Parents who give their homes to their children through a ' double trust' to avoid 40% inheritance tax will be penalised.

Experts estimate that between 20,000 and 30,000 families with properties worth more than the £255,000 inheritance tax threshold will be affected.

Currently, parents can sell their homes to a trust for an IOU, which is passed to their children through another trust. The parents continue to live in the house but on their death the children are exempt from inheritance tax.

Brown wants to end the practice because of fears it threatens £2.4bn in annual inheritance tax. Families must stop the schemes by April 2005.

Because of soaring house prices, especially in the South East, many middle-income families live in properties worth more than £255,000.

The Treasury has suggested the threshold rise to £263,000 next year, but experts say it should be nearer £400,000.

Shadow Chancellor Oliver Letwin said: 'This used to be a tax on the rich, it has now become a tax on the middle classes.'