By Duncan Mitchell-Innes
The Conservative Party general election manifesto will include a promise to add a transferable family home allowance of £175,000 to the inheritance tax (IHT) nil-rate band from April 2017.
This will be a new £175,000 per person transferable allowance for main residences if they are left to children or grandchildren. There is therefore a total potential allowance, for a couple, of £1m (£325,000 plus £175,000 each). The proposed allowance will start tapering on total transfers of more than £2m, with the intention that couples leaving more than £2.35m will not benefit from it.
Conservative Party leader David Cameron has made clear his view that inheritance tax should only be paid by the richest in society. Boris Johnson recently devoted his column in the Telegraph to supporting these proposals. He reinforced David Cameron’s position with the statistic that the average London house purchase price last year was £356,000.
The policy, if implemented, is likely to affect about one in 50 estates each year, equivalent to 22,000 families by the end of the decade, most of them in London. The resulting loss of IHT revenue is planned to be made up by further restricting pension tax relief from £40,000 to £10,000 for those earning over £150,000.
The Conservatives promised before the 2010 election to significantly increase the IHT nil-rate band, but have said that they were unable to do so because they did not gain a majority. Nevertheless, with a recent YouGov poll showing that IHT is regarded as the least fair tax of all, with strong support for the reforms amongst London home owners, and with a plan in place to fund the resultant tax shortfall, there would appear to be a good chance of the proposals being implemented if the Conservatives to win a majority in the next election.
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