Backlash over 'stealth tax on homeowners'

Labour is facing a backlash from homeowners over plans to raise inheritance tax to 50 per cent.

Financial advisers warn it would be the final straw for many wealthy people who backed Tony Blair in 1997, and could even trigger a Seventiesstyle brain drain.

The plan, from Mr Blair's favourite think-tank, would see a new "fairer" 50 per cent tax rate on estates worth more than £763,000. Although Downing Street has attempted to distance itself from the report, many voters believe Gordon Brown has set the 50 per cent rate as a goal for after the next election.

Economists said it was effectively a "tax on the South-East". Doug McWilliams, of the Centre for Economic and Business Research, estimated that 250,000 people in the South-East would be affected.

He said: "People in London would be four times more likely to be hit than elsewhere in the UK, at a time when the South-East is already subsidising the rest of the country by about £20 billion."

John Liddington, an inheritance specialist with lawyers Speechly Bircham, said: "For our clients it is an absolute disaster, and I'd have thought it would be electorally fatal. It's the sort of thing that could tip the balance for some and make them seriously think about emigrating. These are wealthy and talented people."

The current 40 per cent rate is levied on estates worth more than £263,000 and yields the Treasury around £2.5 billion a year. Under the proposals from the Institute for Public Policy Research, the single rate would be replaced by bands. From £263,000 to £288,000 a lower rate of 22 per cent would apply, saving about £4,000 in death duties.

From £288,000 to £763,000 the rate would be 40 per cent, with the 50 per cent rate clicking in from £763,000.