The Conservatives’ Plans to Exempt the First £1 million

 In Comment, Tax

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  • New transferable allowance applicable to property of £175,000
  • To apply only to legacies or bequests to ‘direct family’
  • A form of tapering so that it will have no application to properties valued above £2.35m.

One million pound exemption from IHTThe Conservative Party manifesto, published yesterday, 14 April 2015, confirms what was announced on Sunday, namely that they would, if elected, seek to increase the sum at which Inheritance Tax is paid for spouses or civil partners to over £1 million.

Transferable Allowance

What they say is that they will create a “new transferable main residence allowance of £175,000 per person” (the manifesto). The current nil rate band is not a ‘special’ vehicle, it merely exists because below £325,000 IHT is levied at 0%. So this new transferable allowance may create a rate at which tax is charged at 0% on particular property (i.e. a home), operating in addition to the existing nil rate band (applicable to all property). To this mess will be bolted on the already ungainly system of transferable nil rate bands so that, if unused, the new allowance can be transferred between spouses and civil partners.

An alternative, and perhaps more workable, solution, might be to create a new item of exempt property, the home, and for that exemption to apply up to a certain value, perhaps with that value doubling if the property was acquired (tax free) from a spouse or civil partner. Perhaps when they think about it, the Conservatives will realise that this is what they have in mind.

Whichever route is followed, it will be necessary to define the assets to which this new allowance or exemption will apply. At its simplest it could apply to homes that qualify for Principal Private Residence relief. However, that would exclude homes that are not lived in because, for example, their previous occupants were in nursing homes or otherwise receiving residential care. So some periods of absence, perhaps for specified reasons, will need to be ignored or some other test for a ‘family home’ will need to be found.

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Direct Descendants

To add to the complexity of the proposal, some of the newspapers were reporting on Sunday that the new rules would apply only where the house is passed on to “direct descendants of the deceased”. The logic of this is not clear – why should you not be entitled to leave your property to whomever you want? And when did the Government start identifying who was more or less deserving of inheritances, other than spouses/civil partners?

If this were, nevertheless, to be implemented then it would be presumably done by restricting the legacy or exemption to bequests or legacies made to particular persons.


Since no one in this election wants to be seen to be benefiting the better off, the announcements also states that the allowance would taper, so that it would disappear altogether on properties above £2.35m. How this would work is not entirely clear. Perhaps the amount of the exemption/allowance will itself be defined according to the value of the property to which it applies?

A Confusing Mess

So, if this ever gets enacted, it will bring in a new allowance or exemption of a limited amount that will exist in addition to the current nil rate band, will be transferable and will be defined by reference to

(i) the property to which it applies

(ii) the persons who receive that property under the Will/Inheritance and

(iii) according to the value of that property. It sounds immensely complex and potentially very confusing!

Other Solutions

An obviously better solution, and one which the Conservatives may yet find themselves able to embrace if elected, would be to simply increase the transferable nil rate band to £500,000. So far, the desire to meddle and the need not to appear to benefit the rich, makes that unpalatable but in the longer term sense may prevail.

And the other parties? Both Labour and the Lib Dems have criticised the policy and the Lib Dems are said to have blocked such a change in the last Parliament. UKIP, though, say they would phase out Inheritance Tax altogether.

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