Prime Minister David Cameron hinted that the inheritance tax (IHT) threshold could increase before the election in May next year.
Mr Cameron said that the increase may be included in his government’s final Budget, which is expected to take place in March, meaning that the allowance could be raised as early as April 2015 when the new tax year begins.
The IHT threshold is currently £325,000 with a 40 per cent tax thereafter. The prime minister said that middle class families should not have to pay this death tax when passing on their family home.
Mr Cameron said, “Inheritance tax should only be paid by the very wealthy, and I think you should be able to pass a family home on to your children rather than leave it to the taxman.
“The last government allowed you to pass it between husband and wife, so the effective threshold was £650,000, but I have got ambitions and would like to see that go further.”
House prices in London and the South East are often greater than the IHT threshold. Figures from the Office of National Statistics (ONS) on Tuesday showed that the average house price in London is currently £514,000 and £338,000 in the South East.
The Office for Budget Responsibility has said that the proportion of estates attracting inheritance tax would double within the next four years from one in 20 to almost one in 10.
The last time the IHT threshold was increased was in April 2009 when it was raised from £312,000 to the current £325,000. Prior to the 2009, the threshold had increased every April since 1995.
Mike Horseman, managing director at Cockburn Lucas Independent Financial Consulting, said, “This is extremely positive step in the right direction and sends a great message to savers. It is obviously a vote-winning policy as any increase in the threshold will be welcomed by the general public.
“IHT is a cause of great concern for many, but can be avoided with a combination of legitimate, non-aggressive schemes over a period of time. IHT is an intense area of advice and requires a detailed strategy tailored to the client’s circumstances.
“An IHT threshold increase coupled with the pension reforms and abolishment of the death tax by George Osborne, we are pinching ourselves!”
