Leaked Treasury papers show George Osborne is preparing IHT changes that would see parents able to pass a main property worth up to £1m to their children tax-free while properties worth up to £2m would have their IHT bill reduced by £140,000.
The scheme, proposed by the Chancellor ahead of the autumn statement, but blocked by the Lib Dems, would cost £1bn, according to the Guardian. The documents state that: “Those already living in the wealthiest fifth of households are most likely to receive an inheritance.” The authors believe the measures would be popular with the public, but warn there are slim economic arguments for introducing an inheritance tax exemption specifically related to main residences.
The plan would involve adding a new tax free band worth £175,000 per person, £350,000 for a married couple, to the existing IHT threshold of £325,000 – doubled for a married couple. The move would likely encourage people to shift assets to their main property as other assets are included in the latter threshold.
Source: The Guardian
Speaking as a middle-aged home-owner in the South East, I’d be delighted by this. Or rather, my children would – but hopefully not for some years yet.
Speaking as a commentator on tax policy, I can’t help seeing the shortcomings. IHT (or “grave-robbing” as it’s technically known) is of course a wicked tax up (or down) there with heriot in its justification. But nonetheless a policy which encourages the tying up of wealth in the family home until death is flawed on so many levels.
It would tend to reduce the number of family homes available to be bought by ..er.. families (in the same way as the headlong flight from pensions to buy-to-let has tended to squeeze out first-time buyers at the bottom end of the market); it would exacerbate the problem of underoccupation and efficient use of our housing stock; it would encourage couples in advancing years to continue to live in overlarge, old, draughty, unsuitable properties with high running costs rather than trade down to properties better suited to their real needs.
Think again, George: by all means reduce (or abolish) IHT: but this relief is aimed at the wrong target.