With the second 2015 Budget being announced today, the Chancellor is expected to raise the inheritance tax (IHT) threshold to £1 million and include a special inheritance tax exemption for family homes. The exemption will take the form of an additional nil-rate band (NRB) of £175,000 per person, deductible only from the value of the family home.
The move is designed to get the property market moving and alleviate the housing shortage for large families. The boost for elderly homeowners will come in a budget dominated by massive cuts to Britain’s welfare budget.
The extra relief, however, is not expected to come into effect until the 2017-18 tax year, by which time the NRB will have been frozen at £325,000 for eight successive years.
The Chancellor will use today’s Commons statement to begin setting out plans to cut £12 billion from Britain’s benefits bill. Under the new plans, savers who downsize will effectively be given a form of “inheritance tax credit”, meaning that even if they have sold an expensive property, they will still qualify for the new threshold.
When the idea of a property-linked, extra NRB was first announced by the Conservatives some months ago, it attracted the criticism. It was thought that some older homeowners would become reluctant to sell their homes, over fears of losing the additional IHT relief. Depending on the wording of the legislation, the measure could make a second home owner’s election of principal private residence even more critical.
According to a recent survey, the shortage of suitable housing for older people in Britain is keeping homeowners stuck in properties worth £820 billion and leaving 7.7 million spare bedrooms empty.
Almost a third of homeowners aged over 55 have considered downsizing in the past five years, yet only 7% have actually made the move.
There are also to be further restrictions on tax relief on pension savings of people earning more than £150,000 a year.
The budget is also rumoured to include further charges for non-domiciled residents who elect to be taxed on the remittance basis. There may also be restrictions on non-domiciled status, and an end to the right to inherit it from parents. He is set to increase the annual tax charge paid by people given non-domiciled status. This will allow foreign people living and working in Britain to only pay tax on their UK income, but not earnings from overseas. However, he is also considering limiting non-domiciled status to a maximum of 10 years and ending the ability to inherit it.
The corresponding finance bill will be published on 15th July. Given the need for consultation, this leaves a very tight window in which the bill could receive royal assent before the House of Commons rises for the summer recess on 21st July. Therefore, the bill will probably be carried over into the next parliamentary session.
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