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Govt confirms pension tax relief cut to fund IHT move

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The Government has confirmed it will press ahead with plans to drop inheritance tax for family homes worth up to £1m, funded by reductions in pensions tax relief.

Writing in The Times ahead of this week’s Budget, Prime Minister David Cameron and Chancellor George Osborne said the plans were critical to building “a homeowning Britain”.

Cameron and Osborne also promised more detail on reforms to the planning system next week as part of a productivity plan to improve the supply of housing stock.

“It is unacceptable, for example, that many councils are still not close to having a plan for delivering the homes their communities need,” the pair said.

“We will take action, in consultation with local communities, to deliver the plans for those areas which have failed to do so.”

The statement reaffirms the Government’s commitment to principles first unveiled during the election campaign as part of the Conservatives’ manifesto.

At the time, the Tories said the changes would come into effect from April 2017, and would see the individual IHT threshold raised from £325,000 to £500,000 when property is included, giving a married couple a shared £1m threshold.

Reduced allowances will be offered for properties worth more than £2m, with those worth upwards of £2.35m seeing no change.

The move is funded by a tapering of tax relief on pensions contributions for those earning more than £150,000, with those earning £210,000 able to contribute just £10,000 to their pension on a tax-free basis.

The plans have proved controversial, and the Institute For Fiscal Studies has said the change would “disproportionately” benefit those on higher incomes.

It said: “Since the children of those with very large estates are disproportionately towards the top of the income distribution the gains from this (and in fact any) IHT cut will also go disproportionately to those towards the top of the income distribution.”

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Comments

There are 13 comments at the moment, we would love to hear your opinion too.

  1. Are we going to get the usual smoke and mirrors? So no IHT on homes up to £1million. What of the charge over this? Is this in addition to the £325k? Will married couples who have unused allowance still be able to aggregate to £650k making the IHT nil rate band effectively £1.65 million? I wouldn’t be at all surprised if this won’t be the case. What of the IHT charge beyond the nil rate band? Will it stay as it is with the same inter vivos conditions?
    Osborne is one cute operator and I for one would count my fingers after shaking hands with him.

  2. How I hanker after the time when Budget days were not preceded by a fortnight of leaks in the run-up to them.

  3. And how many Britons can afford any sort of home now that might be inheritance-taxed in the future I ask. Not many, declining fast, and where’s the social fairness in that?

  4. John Stirzaker 6th July 2015 at 5:58 pm

    This is going to fuel further the stupid monopoly money prices that people are paying for properties in the South East. When a four bed terrace with kitchen diner is “worth” £1m the world has clearly lost all sense of proportion.

  5. “The Government has confirmed it will press ahead with plans to drop inheritance tax for family homes worth up to £1m, funded by reductions in pensions tax relief. Writing in The Times ahead of this week’s Budget, Prime Minister David Cameron and Chancellor George Osborne said the plans were critical to building “a homeowning Britain”.”

    What absolute nonsense!

    Do they seriously think anyone will believe them saying the reason that people cannot afford to buy homes in Britain is because they are currently having to pay a bit of IHT on their inheritances? “Yeah, I only inherited £860,000. If I’d got £1m, I might have bought a house”.

  6. Forget your biased political views this will positively affect a huge amount of people struggling to move up the housing chain and relying on inheritance to part fund this move for their later life and security. IHT is a socialist curse that is driven by envy. Let’s remove it or at least copy the U.S. where the nil rate band is $5.43m

    • “Forget your biased political views”…”IHT is a socialist curse.”

      Yes, you’re right. We must all forget those “biased political views”

    • Thomas Mannion 7th July 2015 at 2:16 pm

      The only people to benefit from increased house prices are estate agents (percentage based commissions), banks (lenders) and non-domestic speculators. Everyone who is forced to buy a house in a country where there is such a restricted supply only suffers from higher housing costs. It would be much better if supply were drastically increased and then we wouldn’t have to worry about homes costing £1m and we would all have a lot more money in our pockets and less in the 3 parties I mentioned earlier.

  7. Simon Whittaker 7th July 2015 at 9:04 am

    Whatever the fiscal effects of this, it looks like another 50 pages of mind numbing legislation!

  8. Gerald Potter 7th July 2015 at 9:37 am

    Does this not encourage Mum and Dad to hang around in their 4 bedroom house rather than downsizing and freeing up a home for another family?
    Keep the house, no IHT, sell the house and invest the proceeds, potential IHT charge. As always with any scheme introduced by Mr O, the devil will be in the detail.

  9. Reading some of the above comments, I though I had accidentally logged-in to Socialist Weekly..
    Social Fairness? Sorry, but nobody has a ‘right’ to be able to own their own home. Like most things in life if you can’t afford it accept it and rent (or move to another part of the country where more affordable?). If you look at the receipts, IHT is a grossly unfair tax mostly impacting middle Britain, not ‘old money millionaires’. A high percentage of IHT paid is from estates under £1m, where the largest asset is made up of the family home. Put the envy to one side, sounds like a good idea to me…..

  10. All this will do is drive house prices up, discourage downsizing, so older people will continue to live in houses they can’t afford to run just to pass another £140,000 of value in bricks and mortar form on to their children.

    This is undiluted BS. If we really want level playing fields then we should abolish IHT and just apply CGT on disposal or death to all assets, including all residential property.

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