General Election 2015: Inheritance Tax Proposals under the Conservative Manifesto
The Conservative Manifesto 2015 sets out the party’s proposals to effectively increase the Inheritance Tax threshold to £1million for married couples and civil partners. The cost of the scheme is expected to be £1billion, which will be funded by reducing pension tax relief for those earning over £150,000 per year.
At present, Inheritance Tax is payable at a rate of 40% of the value of an estate over £325,000. The first £325,000 is tax-free, and can be passed from one spouse to another so that the second spouse to die may benefit from a £650,000 tax-free allowance.
If the Conservatives win the General Election, they have promised that from April 2017 parents will be able to utilise a “family home allowance” to enable them to pass their property on to their children free of tax after the death of both parents.
This will be done by adding £175,000 to each parent’s nil-rate band in respect of their main residence, bringing the total that may be transferred tax-free from parents who are married or in a civil partnership to £1million.
The Conservatives have said that the full £1million allowance would still be transferable even if one spouse dies before the policy takes effect. This means that existing widows and widowers would benefit from the policy.
For properties worth more than £2million the new allowance would be gradually reduced so that homes worth more than £2.35million would not benefit at all.
The Inheritance Tax threshold has been frozen at £325,000 since 2009. In the intervening time, many residential properties have increased in value to the extent that more homes than ever before are caught by Inheritance Tax.
The Conservatives say that they want to protect the homes that families have worked hard for from the taxman. However, opponents of the policy claim that the proposals benefit only the wealthiest in society, citing Treasury figures which show that only 10% of estates are currently subject to Inheritance Tax.
However, the Conservatives say that the policy will be paid for by reducing pension tax relief for high earners and that this proves that the policy does not favour the wealthy. The Conservatives have stated that the intention of the scheme is that only millionaires will be liable for Inheritance Tax.
It is estimated that 22,000 families would benefit from the scheme by 2020. Those expected to benefit are married couples or civil partners whose properties have increased in value beyond the £650,000 threshold, but whose assets otherwise would not normally render them liable for Inheritance Tax. With the alternative arguably being the Mansion Tax favoured by Labour and the Liberal Democrats, it will be interesting to see which way the vote goes on 7 May 2015.
This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.