4 October 2007

A cheaper alternative to the Conservative Party’s proposal to raise the threshold at which inheritance tax is paid to ?1 million would be to exempt taxpayers’ family homes (principal private residences) from IHT up to a value of ?1 million, but not other forms of assets, says our experts.

According to our tax experts, the main concern Middle England has about inheritance tax is not being able to pass on the family home. Exempting taxpayers’ principal private residences from IHT up to a value of ?1 million would allay those fears more directly without necessitating high tax rises in other areas.

The principal private residence exemption applies when selling your home (there is no capital gains tax liability), so it is a concept that accountants and taxpayers already understand.

Roy Maugham, Tax Partner, at our London office, comments: “Raising the IHT threshold to ?1 million is a very headline-grabbing suggestion, but it would come at considerable cost to the Treasury, and would exempt people with a lot of investment income from IHT.”

“There are concerns whether the ?25,000 levy on non-domiciles will raise enough money to fund this.”

“A cheaper alternative more closely aligned with public concern would be to exempt taxpayers’ principal private residence up to a value of ?1 million from IHT. That way Middle England’s fear about not being able to pass on the family home would be allayed, without putting so much pressure on increasing taxes elsewhere.”

He adds: “The Treasury could then retain a relatively low IHT threshold which would catch investments, such as secondary properties and stocks and shares.”

Roy Maugham