Reports have backed widespread speculation that the government will be toying with inheritance tax rules in a move to gain more votes at this year’s general election.
According to documents seen by the Guardian, the chancellor has proposed allowing parents to pass a main property worth up to £1m to their children without coughing up for inheritance tax.
The changes would introduce a new allowance where a property is passed on to close family members and children, lifting a £1m property out of the tax altogether and reducing the inheritance tax bill on properties up to £2m by £140,000.
The Guardian, which claims to have seen leaked Treasury documents, states that the tax break would cost the Treasury nearly £1bn and would be primarily aimed at households in London and the south, which have faced growing property prices.
It is not expected to feature in tomorrow’s Budget (18 March), but is thought to be one of the Conservative Party’s main draws to attract votes. Annually, by 2019/20 just over 20,000 fewer estates would have any inheritance tax liability under the plan, the paper stated.
Despite calls for reliefs and exemptions, inheritance tax remains unpopular, with many arguing for the threshold to increase from the existing £325,000 to at least £1m.
Last week, NFU Mutual predicted the government’s abolition of the 55 per cent death tax charge on unused pension pots may signal that a significant change to inheritance tax is coming.
Sean McCann, chartered financial planner at the firm, stated that it is likely Mr Osborne will want to woo voters with another landmark announcement to follow last year’s seismic changes to pensions.
However, he suggested that inheritance tax reform could follow the Irish model where the person inheriting would be taxed instead.
Mr McCann added: “This approach would bring inheritance tax more into line with the new rules on pension pots.”
Earlier this year, Tom Elliot, partner at tax advisory firm Crowe Clark Whitehill, said the government could be set to impose restrictions on the way a key tax relief is used to shelter money from inheritance tax works after the next election.
Recently published research by Canada Life International revealed that 62 per cent of UK adults aged over 45 with assets above the individual IHT threshold were unaware that it was set at this level.
The firm surveyed 1,007 people in this age bracket, finding that only 37 per cent have an understanding of how IHT works.
Only 43 per cent of those with assets above the individual threshold are aware that IHT is levied at 40 per cent, while one in 10 incorrectly think IHT is levied at a rate of 28 per cent, the highest rate of capital gains tax.