Inheritance Tax Reforms To Be Annunced
It looks as though the Chancellor George Osborne will use the budget tomorrow as an opportunity to reform the rules around inheritance tax. It is no secret that the Chancellor has been keen to change the so called hated tax which forces familes to pay 40% tax on estates woth more than £325,000.
It is the most unpopular of all taxes because inheritance tax is being paid on top of tax that has already been paid. Under current rules tax is charged on setates worth more than £325,000 rising to £650,000 for couples who are married or in civil partnerships. Tax is charged on assets worth over £325,000 at a rate of 40%.
Inheritance threshold to be increased
Under new rules the Chancellor will announce a change from the current threshold and allow a couple to pass their house valued at up to £1m to children or grand children without attracting tax. According to media reports he is going to create a tax free allowance of £175,000 per person on top of the £325,000 tax-free allowance that can already be applied on all assetts.
The reforms are well overdue according to many experts and formed a key part of the Conservative Manifesto during the general election. The Chancellor has also said that couples that have downsize their homes will not lose out on the new rules as they will be able to apply their allowance to their previous property. So a couple can buy a smaller home for less money but claim inheritance tax on their previous property.
People will be able to downsize and still benefit
This is necessary as older couples may have been inclined to stay in their existing properties to benefit from the new rules. It is a good way to increase the supply of larger family homes as there is currently a serious of shortage of homes coming onto the market.
It is thought the cost of the reforms are likelyto cost around £1bn and will be financed by reductions in tax relief on pensions for the wealthiest on salaries of between £40,000 - £100,000 per year. According to experts this is likely to affect a small number of people.
No more negotiating with Liberal Democrats on Budgets
It will be George Osbornes first budget where he does not have to negotaite with the Liberal Democrats. He will be able to implement a Conservative budget without being shackled by the Lib Dem policies. Under the new rules it is believed that 94% of people will benefit from the new rules.
The changes will be criticised by some people because it is likely that the budget will announce changes to the welfare system and further cuts to benefits. He is also likely to announce further austeruty measures that is likely to cause uproar amongst parties in opposition.