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.”