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Tories target £1m IHT giveaway at wealthier households

by: Mortgage Solutions
  • 17/03/2015
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Tories target £1m IHT giveaway at wealthier households
Parents would be able to pass a main property worth up to £1m to their children without paying any inheritance tax (IHT), under plans in Treasury papers leaked ahead of Wednesday's budget.

Conservative Chancellor George Osborne’s proposed measure would also reduce the inheritance tax bill on properties worth up to £2m by £140,000, the Guardian reports.

The Treasury analysis said the scheme would “most likely benefit high income and wealthier households”.

“Those already living in the wealthiest fifth of households are most likely to receive an inheritance,” the paper stated.

The tax break would cost the Treasury nearly £1bn.

By 2019-2020, just over 20,000 fewer estates annually would have any inheritance tax liability under the plan.

A government source told the Guardian: “This looks like a policy to buy more Tory votes to help the wealthy and would be highly regressive in its impact on society.”

The inheritance tax plan involves the creation of a new tax-free band worth £175,000 per person on a family home. It can transferred between married couples, making it worth a maximum of £350,000.

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.

In those circumstances, the new threshold would then be added to the existing inheritance tax threshold, where no tax is paid for the first £325,000 on the value of an estate.

At present tax is paid at a rate of 40% after the first £325,000 – a sum that can also be transferred between married couples making that worth £650,000 – which applies to property and any other assets in an estate.

The Treasury paper shows as a result of the proposal it is 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. The £1m figures comes from adding to together the existing £650,000 maximum with the new maximum £350,000 relief.

That would be a saving of £140,000. On a property worth £1.5m, the inheritance tax bill could fall from the current average to £340,000 to £200,000.

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