A mum, dad and child hold hands as they walk along a beach

Summer Budget 2015: suggestion of changes to proposed new Inheritance tax relief for properties

The papers have been reporting that the Chancellor intends to include plans for the new transferable Inheritance tax (IHT) allowance for properties in tomorrow’s Budget. This is the plan included within the Conservative Party’s manifesto to give married couples an additional IHT allowance of £175,000 each, transferable between each partner and applicable against the value of the family home only (rather than against the estate generally). We have written previously about the proposed new allowance and the way that it might encourage taxpayers to hold on to larger properties, and could potentially penalise those who have to sell their home on moving into care.

It has been suggested in the media that these concerns will be dealt with in the Budget tomorrow by some sort of ring-fencing of the proceeds of sale of a family home. This would allow an elderly couple to move into a smaller home and the proceeds of sale of the larger home would be taken into account in calculating the allowance. This would raise all sorts of questions: will there be any limit on the time allowed for ring-fencing proceeds?  Will it be necessary for taxpayers to own  their family home for any particular period before it is taken into account in determining the allowance?  How will this apply if the couple have owned two homes simultaneously and what evidential proof will be required by HMRC?

The introduction of the transferable nil rate band between couples already means that certain records have to be retained after the death of the first of the couple in order to claim the unused allowance on the second death. Will tax payers now need to keep records of the value of the houses they sell also?

The proposed amendments do not deal with concerns raised in some quarters about the overly preferential tax treatment of property as an asset class. The alterations to the original proposals might prevent the avoidance of downsizing but the existence of the proposed allowance may encourage those with higher value estates to invest in property rather than other investments such as quoted shares which are fully liable to IHT.

We hope the Chancellor will announce a consultation on the proposed new allowance in the Budget tomorrow so that any wrinkles in the relief can be ironed out before it reaches the statute book as it seems to us that a number of complications might arise when implementing this proposal.