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Top earners’ pension tax relief cut to pay for Tories’ IHT plans

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  • 13/04/2015
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Top earners’ pension tax relief cut to pay for Tories’ IHT plans
Conservative party plans to remove family homes worth up to £1m from inheritance tax (IHT) will be paid for by cutting pension tax relief for those earning over £150,000.

The pre-election pledge – revealed by the Guardian newspaper in March – would see David Cameron’s party introduce a new transferable ‘family home allowance’ of £175,000 per person.

For a married couple, who already each benefit from a £325,000 nil rate band, this will effectively increase the IHT threshold to £1m. 

This new allowance will be tapered away from those leaving more than £2m, with the intention that those leaving more than £2.35m will not benefit from the new allowance.

The move would cost £1bn and would go “disproportionately to those towards the top of the income distribution”, the independent Institute for Fiscal Studies said in a note.
 
Its director Paul Johnson told the BBC it would drive up already inflated house prices.
 
The vast majority of estates – over 90% – are not liable to IHT at the moment and therefore would not benefit, according to the IFS figures.
 
With around 50,000 estates forecast to pay IHT over the next few years, the average mean gain per IHT paying estate would be around around £20,000, the body said.
 
The maximum reduction in IHT on a couple’s estate is £140,000 which will go to married couples with estates worth between £1m and £2m.
 
IHT, which applies to some wealth that is transferred on or shortly before death, is currently charged at 40%, with each individual receiving an allowance of £325,000.
 
Any unused proportion of this allowance is transferable to a surviving spouse or civil partner, effectively doubling the inheritance tax threshold for many couples.
 

 

 

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