In our last blog we wondered whether there would be any increase to the long frozen Inheritance tax (IHT) nil rate band in the Budget. The papers today include reports that there will be no significant changes included in the Budget, but that the Conservative party’s election campaign will include a promise to introduce a new IHT free band applying to properties.
Despite the introduction of the transferable IHT nil rate band in 2007, which means that a married couple or couple in a registered civil partnership can currently leave assets worth up to £650,000 without any charge to IHT, the increase in house prices in London and the South-East means that many people, even if their only asset of value is the family home, still have a potential IHT liability. For a couple with a home valued at £1 million this IHT liability on current rates would amount to £140,000.
The papers are reporting that the plans would create an additional relief of £175,000 per person which could be claimed against the value of a family home. If this is transferable between couples in the same way as the IHT nil rate band, then a couple owning the same £1million property would find that their IHT liability would be reduced to nil as, after application of all reliefs, the chargeable value of the estate (assuming no other assets) would be nil. It is reported that there would be a taper, meaning that estates substantially above £1million would not benefit from the additional tax free amount.
Such a measure would appear to reduce the burden of IHT on couples owning property in the more expensive areas of the country. As with all tax measures the devil will, however, be in the detail. If this measure makes it to the statute book in the form suggested by the media it will be interesting to see, for example, how “family home” is defined. Could there be some form of election for those people who own more than one property as currently applies for Capital Gains Tax main residence tax relief?
We will comment more if and when details of the proposed new measure are announced.