CAIRO, May 8, 2006 (IslamOnline.net) – New changes to the British Inheritance Tax (IHT) law will badly affect many Muslim families who could end up selling their homes to pay the new levy, a leading British newspaper reported on Monday, May 8.

"Well over a million wills will need review, including those of thousands of Muslim families," David Harvey, chief executive of the Society of Trust and Estate Practitioners, told The Guardian.

IHT is essentially a form of death duties. It taxes at 40% the value of all the assets one leaves behind on death.

It affects estates which are valued at more than £285,000, including the value of one's house.

In practical terms, it has to be paid by someone's executors before they are able to manage their assets and potentially hand them on to the beneficiaries.

The most important exemption is property left to a UK-domiciled spouse.

In English law, a widow or widower can inherit in full without paying inheritance tax.

Muslims face a real religious dilemma as they are required by Shari`ah to distribute their wealth in specific quotas for their loved ones, but want to protect their families now in their wills from the new rules, which will come into effect in 2008.

"As it now stands a husband leaving a £400,000 inheritance would result in the children being landed with a bill for £25,000 inheritance tax," said Haroon Rashid, whose company I Will is one of the largest preparers of wills for the Muslim minority estimated at some 1.8 million people.

"In some cases, the only way for them to pay it would be to sell the house their widowed mother is living in.

"There is currently no other way around this problem and I don't believe this was ever intended."

Under Shari`ah, widows are entitled to an eighth of the assets, and widowers a quarter.

The rest must be split between their children and any surviving parents.

Under the new rules, revealed by Chancellor of the Exchequer Gordon Brown in Budget 2006, a married Muslim man, for instance, with an £800,000 estate could therefore protect only £100,000 of the total amount by leaving it to his wife free of tax.

Of the rest, £285,000 would be exempt under the nil-rate band and the remaining £415,000 would be subject to a 40% charge.

Lawyers and accountancy groups have already demanded a rethink of the tax changes whose impact has led lawyers to delay writing wills or review them to mitigate the effects, and curbed the processing of life insurance, the daily said.

"Over the last year we alone have created 250 wills for clients that will now have to be re-written," said Rashid.

He said the new move contradicts the Treasury's recent efforts to encourage banks to introduce Shari`ah-compliant financial products.

"Gordon Brown claims he wants to make it easier for people to use Shari`ah- compliant finance, but this change makes life more difficult for bereaved Muslim families," Rashid told the Times newspaper.

"Most Muslims with estates worth more £285,000 will be affected, which means pretty much anyone with a property in London. I don’t think it has been properly thought through."

Tax planners across the country claim that the true number of people hit by the IHT could be up to 10m against the government’s estimate of 20,000.

If that is the case, the cost to families could be over £2.5 billion — more than 16 times the £15m the chancellor has said will be raised in extra tax, the Times noted.

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