Osborne set to raise IHT threshold to £1m for couples
Inheritance tax (IHT) will only be payable on family homes worth £1 million or more, chancellor George Osborne has confirmed.
Currently, any value in an estate worth more than the £325,000 per person threshold (£650,000 for couples) is subject to IHT of 40%.
But writing in The Times over the weekend, Osborne and prime minister David Cameron say the threshold for couples will rise to £1 million from April 2017.
According to reports, however, the chancellor will announce an additional £175,000 tax-free allowance per person for their main property on top of the existing allowance - which applies to all assets - in his emergency Budget on Wednesday.
Wednesday's 'blue Budget' will be the first all-Tory Budget delivered since 1996 and, although many commentators have speculated on what will likely be included, Osborne has developed a reputation for Budget surprises during his time as chancellor.
Although the change to IHT will benefit society's highest net-worth homeowners – notably those who own property in London - financial advice firm Portal Financial says the move would be 'unfair' if funded by a cut to pension tax relief.
The criticisms come in light of other widely expected moves to lower the lifetime pension allowance from £1.25 million to £1 million, and reduce pension tax relief on a sliding scale for those earning more than £150,000.
"This policy is so ill-thought out that it does not consider the size of the pension fund," says Portal managing director Jamie Smith-Thompson, "so if a high earner has a very small pension they still cannot contribute more than the £10,000 a year.
"In the past five years alone we have seen a reduction in annual allowance from £255,000 to £40,000, and the lifetime allowance has almost halved from £1.8 million to £1 million. How can anyone be expected to save in confidence if the rules and allowance keep changing?"
This article was written for our sister website Money Observer
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.