Is the recent Budget's IHT main residence extension to £1m a positive step?
With the average price of a London property currently standing at nearly £500,000 this is clearly going to help a certain section of society. Whereas inheritance tax was originally designed to hit only the wealthiest, it has certainly evolved in recent years to something more inclusive.
Arguments suggesting this may have a negative effect on housing stock are spurious: previously Invest Southwest have helped clients to downsize their home to gift money to beneficiaries and reduce a potential IHT liability, in so doing depleting first time buyer housing stock. This will now not be necessary. That said, under these new rules, older generations will be able to downsize and hold onto the equity released in savings as long as enough is bequeathed to children or grandchildren. So any positive or negative effect on housing stock will, in my view, be marginal.
Combined with the ability of pension pot holders to pass on funds completely (inheritance) tax-free, I would argue the main residence nil rate band also helps averagely wealthy people to protect their hard earned assets. Both this inheritance tax initiative and pensions tax breaks have almost total exclusions for the super rich. It is the ‘middle band’ who will benefit.
My main concern is that this is being introduced as late as April 2017 and even then only tapered through to April 2020. It is a good idea to incentivise this demographic to work hard: accumulate and pass on to beneficiaries. There is no reason why this could not be introduced sooner. Younger generations are swamped with student loans and unachievable house prices which dis-incentivise a vital element of our society from making any effort at all. This IHT initiative, alongside pension reforms, could go a long way towards enabling families to reverse the problem.
16 July 2015
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