UK Conservative Party promises GBP1 million homes will be IHT-free

The Conservative Party general election manifesto will include a promise to add a transferable family home allowance of GBP175,000 to the inheritance tax (IHT) nil-rate band from April 2017.

The current nil-rate band is GBP325,000 for each individual, and can be transferred to a surviving spouse or civil partner on death. Thus the new allowance would enable a couple to pass on a principal residence worth GBP1 million to their beneficiaries free of IHT after the death of the surviving spouse.

The allowance will be tapered off on homes valued at more than GBP2 million, reaching zero for properties worth GBP2.35 million or more.

Conservative Party leader David Cameron said inheritance tax should only be paid by the rich, not be paid by people who want to pass on the family home to their children. The party promised before the 2010 election to significantly increase the IHT nil-rate band, but were unable to do so because they did not gain a majority.

The policy is likely to affect about one in 50 estates each year, equivalent to 22,000 families by the end of the decade, most of them in London. The resulting loss of IHT revenue will be made up by further restricting pension tax relief from GBP40,000 to GBP10,000 for those earning over GBP150,000, said the party.

Sources

• Bloomberg