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Conservatives to increase IHT threshold

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David Cameron has confirmed that a Conservative government would increase the inheritance tax threshold to £1m.

Current rules mean a tax of 40 per cent is levied on estates larger than £325,000. Cameron’s proposals would allow parents to pass on assets worth up to £1m, by affording parents a ‘family home allowance’ of £175,000 for main residences bequeathed to children or grandchildren; the Prime Minister says the plan would save inheritors up to £1bn, and would be funded by higher taxes on pension savers who earn over £150,000 annually.

An increase in the IHT threshold was a cornerstone of the Conservatives’ 2010 election manifesto, but was removed from the government’s legislative program at the request of the Liberal Democrats.

“The wish to pass something on is about the most basic, human and natural instinct there is,” declared David Cameron during the policy announcement, “and that’s why for a long, long time I have wanted to act on inheritance.”

“You want to know that even after you’re gone, when you’re not on the phone and not physically there, you can still provide for your family,” he concluded.

However, Cameron’s pledge immediately provoked hostile reaction from many quarters. The Institute for Fiscal Studies (IFS) said the move would “disproportionately” advantage the wealthy, noting that 90 per cent of estates are not currently liable for IHT.

“With around 50,000 estates forecast to pay IHT over the next few years, this gives an average (mean) gain per IHT paying estate of around £20,000,” a spokesperson for the Institute commented.

“Since the children of those with very large estates are disproportionately towards the top of the income distribution the gains from this cut will go disproportionately to those towards the top of the income distribution.”

Shadow home secretary Yvette Cooper also reacted negatively to Cameron’s pledge, lambasting the Prime Minister’s “wrong priorities.”

“This is a proposed £140,000 tax cut for properties worth around £2m, at a time when you’ve got families still losing their homes because of the bedroom tax, at a time when pensioners and families have had to pay more VAT.”

To view past Your Money articles on the subject of inheritance, including guides and analysis, please click here.

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