RNRB could “deepen the north-south divide”

An MP has warned that raising the inheritance tax allowance could exacerbate the north-south divide.

Research conducted by Labour MP Rachel Reeves has indicated that the most benefit from the Residence Nil-Rate Band (RNRB) will be gained by homes in London and south-east England.

96 of the 100 constituencies to benefit the most are located in either London or the south-east.

Reeves highlighted that the benefits of the tax cut would be limited to certain areas, stating: “These new figures reveal the government’s inheritance tax giveaway will only benefit a wealthy elite in London and the south-east at the expense of the rest of the country.”

Due to be implemented from April, the RNRB will provide an additional inheritance tax allowance, applying to homeowners who bequeath an interest in their property of residence to direct descendants.

Being brought in gradually, the allowance will increase by £25,000 each year, eventually growing to £175,000 by 2020/21.

On top of the existing inheritance tax allowance of £325,000, the combined allowance for an eligible couple will reach £1 million in 2020.

According to Reeves’ findings, the new IHT limit is likely to only help 0.04% of people in England and Wales, with around 26,000 not having to pay any IHT by 2020/21.

Feeling the benefit will be those with homes with a value over £650,000.

The majority of these homes are in Southern locations, with affected constituencies largely being held by Conservative MPs – just 31 are held by Labour. In Theresa May’s constituency of Maidenhead, for example, 20% of homes surpass the £650,000 threshold.

In contrast, however, just 0.2% of homes sold in Reeves’ constituency of Leeds West were sold at a value above this threshold during 2015-16.

As well as stating that the plan would only “deepen the north-south divide” she doubted how the tax cut would support Conservative claims that they are backing working families.

Also arguing that the tax was unfair was Graham Brady, MP for Altrincham and Sale – a constituency in the top 100.  He stated: “People have been taxed on their income, and they should not face penal tax charges when they leave something to their children.

“It is worth saying that the lesson of recent decades is that, if this tax was left unreformed more and more families around the country would be sucked into it when it was originally intended for the very wealthiest.”

Despite the criticism received, a spokesperson from the treasury has stated that the soon to be implemented policy is unlikely to change.

“The government wants families to be able to pass on their home to their children or grandchildren.

“That’s why, in line with the manifesto commitment, we’re reforming the rules to bring down the number of families paying inheritance tax from next year, with nearly 20,000 estates taken out of paying inheritance tax from April 2020 alone.

“Under the new system families will have a new £175,000 inheritance tax allowance for their home on top of the existing £325,000 threshold.”



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