Conservative plans to reform inheritance tax on property
Chancellor George Osborne is believed to be planning reforms to the inheritance tax (IHT) regime so parents can pass a main property worth up to £1m to their children without incurring a tax liability, although he is unlikely to include the proposals in tomorrow’s Budget due to Lib Dem opposition
The plans involve creating a new tax-free band worth £175,000 per person on a family home, which can transferred between married couples.
The new nil rate band 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. Other family members would not be able to benefit.
This new threshold would then be added to the existing £325,000 IHT threshold, which is also transferable between couples.
Potentially this means there is a maximum relief available of £650,000 plus £350,000.
According to Treasury calculations in documents seen by the Guardian newspaper, this would mean that in some circumstances there would be no IHT payable on qualifying properties worth up to £1m.
On a property worth £1.5m, the inheritance tax bill could fall from the current average to £340,000 to £200,000.
However, the benefit of the exemption would be removed or reduced altogether through a taper for estates worth more than £2m, meaning some estates would be paying substantially more.
The proposals, which are most likely to benefit homeowners in London and the south east where property prices have risen sharply, are opposed by the Liberal Democrats.
For this reason they are unlikely to feature in the Budget speech tomorrow, but may well form part of the Conservative manifesto ahead of the general election on 7 May say Harris & Co chartered accountants Northampton