Inheritance tax to be removed on £1m homes

With less than a month to go before the General Election, more details are starting to emerge about manifesto promises from the various political parties.

It was the turn of the Conservatives this weekend, who announced their plans to remove family homes valued at up to £1m from inheritance tax.

Announcing the measure, Chancellor George Osborne said this “supports the basic human instinct to provide for your children”.

The policy would cost around £1bn and it would be funded by reducing the tax relief available on pension contributions for people earning over £150,000. The annual allowance would taper down from £40,000 to £10,000 by the time earnings reached £210,000.

Inheritance tax is currently charged at 40% on the value of your taxable estate over the nil rate band of £325,000. You can pass on any unused nil rate band to a spouse or civil partner, and assets transferred between spouses and civil partners on death are free of inheritance tax.

What the Conservatives are proposing is a further £175,000 “family home allowance”, so family homes worth up to £1m can be passed on free of inheritance tax to children when the parents have both died.

Even if one spouse or civil partner has died before the “family home allowance” is introduced, the full amount will still be transferable.

For people with properties worth over £2m, the “family home allowance” will be gradually reduced so those with homes valued in excess of £2.35m will not benefit from the extra nil-rate band at all.

The Tories plan to introduce this policy in April 2017, should they win at the General Election next month.

Critics of the policy have called it a “panicky promise” and said it addresses “the wrong priorities”.

It is however a policy in clear contrast to Labour plans for a mansion tax and follows previous Conservative policies of pension freedoms and tax-free savings, which are likely to appeal to older voters.