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Tories to raid pensions tax relief to slash IHT

Prime Minister David Cameron has pledged the Conservatives will create a new threshold for inheritance tax of £1m if elected.

The changes would come into effect from April 2017, and will be funded by restrictions on pensions tax relief for those earning more than £150,000. 

Annual allowances for savings will be tiered on earnings between £150,000 and £210,000, with those earning £210,000 seeing their annual allowance cut from £40,000 to £10,000.

In a speech this weekend, Cameron said the individual IHT threshold will be 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 Conservatives claim around 22,000 families will benefit from the move by 2020.

Cameron said: “We will take the family home out of inheritance tax. That home that you have worked and saved for belongs to you and your family.

“You should be able to pass it on to your children. And with the Conservatives, the taxman will not get his hands on it.”

The Conservatives pledged to raise the limit to £1m in their 2010 manifesto, a move blocked by the Liberal Democrats in coalition.

But the Institute For Fiscal Studies says the change would “disproportionately” benefit those on higher incomes.

It says: “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.”

Labour also plans to reduce pensions tax relief for those earning over £150,000. 

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Comments

There are 12 comments at the moment, we would love to hear your opinion too.

  1. Apart from the obvious salary sacrifice avoidance strategy, does the AA immediately revert to £40k below £150k pa?

  2. Calm down dear – it’s only an advertisement.

    Actually it’s the same old, same old. Give with one hand and take with the other. IHT more benign – pensions trashed to pay for it. So which to you prefer – less to live on in your lifetime when you retire or more to leave the kids?

  3. How to alienate anyone working within a defined benefit state services scheme. Perhaps it is Conservative intention to effectively force Consultant doctors and GPs out of the NHS so that they all go private, but with both scissor penalty of both annual allowance and LTA restrictions, unless DB rules are altered, many will leave early. Pension allowances are real, for the living, trying to provide for themselves so that they are not reliant upon the State, all IHT allowances do is make those with large estates feel a bit better, but its illusory as the ultimate estate assessment isn’t until death. This is nothing more than an attempt to appeal to older voters and deter them from voting UKIP (presumably).

    Why can’t we have some sensible pension policy that isn’t constantly being manipulated to suit an ill-informed media and an even more ill-informed public.

    Utterly stupid.

  4. On the basis that it is highly unlikely for a Tory majority anyway this time round, and that a Liberal ‘prop up’ would not agree to this policy, it seems really of little likely relevance at this point? Political games me thinks.

  5. This is an utterly stupid policy that is likely to leave wealthy older people trapped in expensive property for fear of losing IHT relief. In one fell swoop it makes both pensions and IHT planning even more complex.

    Just link the Nil Rate Band to the house price index and leave everything else alone.

    At the moment I’m considering spoiling my ballot paper as there is absolutely no-one I wish to vote for.

  6. So the pensioners of the future are paying for the pensioners of today?

  7. A tax on those higher earners who live outside of the South East as well.

  8. @Sean

    ‘Twas ever thus.

  9. @ Soren “At the moment I’m considering spoiling my ballot paper as there is absolutely no-one I wish to vote for.”

    I’m relieved to hear it’s not only me that thinks that way!

    If only we had a Monster Raving Looney candidate in our constiuency I might be tempted…..”I’m completely off my rocker, vote for me”…….such honesty would be refreshing!

  10. @chipping – we’ve got Al Murray (the Pub landlord) standing in my town 🙂

  11. @Chipping

    I so hope that your name ‘Chipping’ is a reference to your constituency!!

  12. @ Phil – oh if only!

    Actually what I quite liked about the Monster Raving setup was that without any prospect at all of electoral success (and no real hankering after it either) they were quite at liberty to say whatever they felt (within the normal legal bounds of course). I recall some of their pronouncements did actually make sense, if electorally suicidal.

    And there’s something wonderfully eccentrically English about it, we need a genuinely “I don’t give a hoot” representative in Parlliament…..might just burst a few balloons!

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