Tax cuts for £1m-plus homes
Chancellor George Osbourne delivered his highly anticipated pre-election budget on Wednesday, and in it, he revealed some positive developments: that living standards are higher than five years ago, with record employment and growth reaching 2.6 per cent in 2014. In addition to this good news, some personal tax breaks were announced that are set to benefit many thousands of hard-working people.
As part of Mr Osbourne’s statement on personal taxation, he declared that the Tories would ‘review’ the avoidance of inheritance tax (IHT) through deeds of variation – when the will of someone who has died is changed to reduce the amount of inheritance tax payable by the beneficiaries.
However, what was conspicuous in its absence from the budget was the Tories’ plans to raise the IHT threshold to £1million. This means that a homeowner can pass on a property worth up to £1m to their children, tax free. In addition, the break will result in inheritance tax due on properties worth up to £2m being reduced by £140,000.
The proposals were contained in a ‘sensitive’ paper that was seen by The Guardian earlier this week, and are expected to form part of the Conservative Party election manifesto. But what are the implications for those with high-value assets, including property?
- Let’s say Mr Smith’s assets are worth £1million, comprising only his home (valued at £1 million).
- Mr Jones’s assets are also worth £1million, half of which is the value of his home (£500,000) and half is invested in other assets.
- Under the Tories’ plans, Mr Jones could end up paying more tax than Mr Smith on his assets, even though their total estates are worth the same.
If the Conservatives win another term in government and the IHT cuts are passed, it would mean that almost 22,000 fewer estates would be liable annually, at a cost to the Treasury in the region of £1billion.
According to Zoopla, the UK boasted almost 500,000 property millionaires last year, a rise of almost 50 per cent from 2013. While one-third of the streets with an average property values of more than £1million are, unsurprisingly, in the capital, Britain’s sixth most expensive town was named as Beaconsfield, Buckinghamshire, where property prices average almost £900,000 (if you want to join the Buckinghamshire elite, check out our properties in the area here).
What do you think of the proposed reforms to inheritance tax? Do you think they will only benefit the well-off, or will help those with moderate-value homes by removing the burden of tax currently incurred above £325,000?