HUNDREDS of Muslim families could be forced to sell their houses to pay inheritance tax bills as a result of changes to the way trusts are taxed. Gordon Brown announced in the budget in March that he was clamping down on the use of trusts to avoid inheritance tax. The impact on the Muslim community, which numbers up to two million, has only now emerged.

Under Sharia law, Muslims are required to distribute their wealth upon death through a special Islamic will. Widows are entitled to an eighth of the assets, and widowers a quarter, with the rest having to go to other family members. Until now, they have used trusts as a way of redistributing assets without incurring inheritance tax.

In English law, a widow or widower can inherit in full without paying inheritance tax. The tax is only payable by children (and other beneficiaries). Haroon Rashid, whose company I Will is one of the largest preparers of wills for the Muslim community, said the changes presented a huge problem.

He said: “Over the last year we alone have created 250 wills for clients that will now have to be re-written. 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. 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.”

David Harvey, chief executive of the Society of Trust and Estate Practitioners, said: “This is yet another example of the problems caused by the Treasury’s proposals to tax trusts. Well over a million wills will need review, including those of thousands of Muslim families. The cost to the public will be at least £340m for a tax designed to raise only £15m a year.”

Lawyers and accountancy groups have already demanded a rethink of the tax changes whose impact has led lawyers to delay writing wills, and curbed the processing of life insurance. They say they were not consulted properly before the change in law. They also argue the move contradicts the Treasury’s recent efforts to encourage banks to introduce Sharia-compliant financial products.

The Treasury said: “The government has provided for the position where a trust set up on death allows a widow to live in the family home as a life tenant with the asset passing to other family members on the widow’s death. This arrangement is exempt from the new IHT [inheritance tax] rules. We are now exploring how to ensure that trusts set up in accordance with Sharia law can benefit from this exemption.”—Dawn/The Guardian News Service