The Conservatives outlined their plans to raise the IHT threshold to £1 million in their election manifesto. A ‘residence allowance’ of £175,000 would enable married couples to transfer a property of up to £1 million to their children without having to pay IHT.
The £175,000 residence allowance will enable homeowners to extend their current £325,000 IHT threshold to £500,000. Married couples can combine these to give an overall IHT threshold of £1 million.
However, NFU Mutual’s research has revealed that thousands of families could miss out on the tax break because the family home has already been sold.
Data from HMRC shows that thousands of ineligible estates without property must pay IHT bills each year.
The Chancellor is widely expected to officially announce the plans during his Summer Budget in July.
Sean McCann, chartered financial planner at NFU Mutual, said the plans will “stick in the craw” of those who have already sold their houses:
“These proposals are acknowledgement from the government that the existing inheritance tax threshold is far too low. However, it would be much fairer to apply an overall increase rather than tinker with the rules around who can benefit and who can’t.
“Under the new proposals, we could soon start to see more elderly people reluctantly house-sitting for the next generation or even upsizing to make the most of this potential tax break. The wider effects on the property market could be significant.”