Tories eye property IHT overhaul

Chancellor George Osborne is considering reforms that would allow parents to pass a main property worth up to £1m to their children without paying inheritance tax, The Guardian reports.

The plan, which the report says is unlikely to be unveiled in tomorrow’s Budget, would see a new tax-free band worth £175,000 per person created on a family home.

The new nil-rate band would be transferrable between married couples, making it worth a maximum of £350,000.

It would apply to the value of a family home or other main residence transferred to a direct descendant of the deceased, including step children and adopted children, according to The Guardian. Other family members would not be able to benefit.

In these circumstances the new threshold would be added to the current IHT threshold, where no tax is paid on the first £325,000 of the value of an estate.

According to a leaked Treasury paper seen by The Guardian, the proposal would mean it would be possible that no inheritance tax would fall due on qualifying properties worth up to £1m, depending on the value of the rest of the estate.

This figure comes by adding the existing £650,000 maximum nil-rate band with the proposed £350,000 band.

The document, written for Conservative Treasury financial secretary David Gauke, says: “You have indicated a desire to reduce the burden of inheritance tax. Having considered the cost of a substantial increase in the existing nil rate band you and the Chancellor have indicated you would like instead to introduce a more targeted measure to allow the family home to be passed onto the children of deceased without it leading to an inheritance tax liability.

“This reflects the concern raised by the public about rising house prices increasingly leading to estates with a modest house particularly in London and the South-east paying inheritance tax.”

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Comments

There are 11 comments at the moment, we would love to hear your opinion too.

  1. This is a good thing if it happens, but they need to tackle the foreign purchasers who currently escape Stamp Duty on purchase and CGT on disposal…

    In London the majority of new builds are bought (off plan) by Russians and Chinese who never live in them, just rent them out. It pushes up the property price and also makes it difficult for good honest hard working UK taxpayers get on the property ladder!

  2. I assume this would apply to the first £1 million value of a house, rather than just being confined to houses worth up to £1 million as the report seems to suggest. Speaking personally it would be rather nice, but I wonder whether giving yet another tax privilege to main residences is really such a good idea. It would provide a further boost to house prices and discourage people from trading down.

  3. @Victor M – it’s not just ‘hard working’ UK taxpayers on the property ladder… there are plenty of bone idle people on the ladder too – those who inherit property without having to pay any tax on it for example….

  4. @Victor M – Trouble is this new IHT plan does nothing to help hard working people get on the property ladder. If anything, it just helps bone idle people get on the ladder through accident of birth rather than their own hard work.

  5. As described this is a silly and poorly thought through rule that will lead to older people under occupying large properties for IHT purposes. In a country with a shortage of property the last thing we need is a tax rule that encourages one person to occupy a six bedroom house.

    It would also mean that those that need care may have the double hit of meeting care costs and losing their IHT property relief.

    This policy needs a great deal more thought, such as a relief when a property is sold.

  6. Call a spade... 17th March 2015 at 10:00 am

    If this comes in then, in the spirit of selling annuities, will people who have previously paid IHT on inherited property be able to claim it back? After all, why shouldn’t they benefit from new “freedoms”?

  7. And why limit it to those that have been fortunate enough to have children? There are many couples as well as single people without children who have already contributed significantly more through taxation than they have received through what those taxes provide who will continue to have to pay further tax on their property when they die.

  8. Politician’s in Westminster can easily get blinkered by the North South divide which is more probably better seen as a South East divide, built on property price inflation, inflated by London.

    At the moment the Inheritance Tax threshold is £650,000 for a couple. But if you go into long-term care then that takes 100% of everything over £23,250 [in capital assets] so it is potentially a much bigger problem for a much larger number of people. This is the new inheritance tax and more and more ordinary people face. The care fee cap is a fiction and of no benefit to the majority.

  9. Simthy0364

    If you want to spend every penny you ever earned (assuming you are not always on welfare) and leave nothing for your children that is fine by me – but I object to you wanting to tax my lifetime earnings because I saved for my children.

  10. The voice of reason ;) 17th March 2015 at 12:35 pm

    So, the proposal would give us –
    – person on the minimum wage, works hard and is awarded a bonus = c32% tax and NI
    – person who happens to have parents with a £500k house, inherits the property = no tax

  11. Every bit as idiotic as the mansion tax. There is no rational case for discrimating between asset classes in this way. It can only lead to yet more market distortions. If we have to have IHT, why not graduate it rather as has been done with stamp duty.

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