The chancellor Rachel Reeves is being urged to launch a £2bn inheritance tax raid on family homes by scrapping the £175,000 residence nil-rate band in the Budget on 30 October.
According to the Resolution Foundation there was “a good case” for abolishing the allowance which allows homeowners to protect an extra £175,000 of their wealth from inheritance tax.
The left-leaning think tank wrote: “This is a complex and distortionary relief, first introduced in 2017, and costs around £2bn a year.”
Reeves accused the Conservatives of introducing “a tax break for a wealthy elite” when they came to power in 2010, vowing to take the family home out of the inheritance tax net.
She wrote in a 2011 article for the Guardian newspaper: “The phased changes of this iniquitous and ill-conceived plan are due to start in April. It is a tax break for a wealthy elite, at a time when the NHS faces a cash crisis and the Government is moving to cut £3.7bn in disability benefits from the most vulnerable in society.
“Raising the [inheritance tax] limit to £1m for couples will do nothing for the vast majority of ordinary families. In fact, it’s likely to help just 0.04pc of people in England and Wales.”
In addition to the £325,000 nil-rate band, homeowners can use the residence nil-rate band to shield £175,000 from tax. It means individuals can pass on a total of £500,000 without paying inheritance tax. Couples can share their allowances, leaving behind a maximum of £1m tax-free.
Consequently, a married couple with a £800,000 home and £200,000 worth of other assets would have no inheritance tax due on their estate.
However, if the residence nil-rate band was scrapped, they would only be able to pass on up to £650,000 of wealth before incurring a 40% charge. Therefore, abolishing the extra allowance would cost their family £140,000.
Official figures show that 25,800 families claimed the extra allowance in 2021-22, sheltering £6.5bn of property and saving £2.6bn in the process.
The chancellor has warned she will have to raise taxes in the autumn in order to fix a £22bn black hole in the public finances.
Sean McCann, of insurer NFU Mutual, said: “The complexity of the rules, particularly when downsizing or selling up to move into residential care, and the fact that many are unaware of the extra tax-free allowance, adds to the likelihood that it will be scrapped as a simplification measure.”
The Resolution Foundation said that if the chancellor overhauled the whole system, she could introduce a 20% and 30% inheritance tax rate, with 40% reserved for estates worth over £1.5m.
The Institute for Fiscal Studies, another think tank, has previously recommended abolishing the residence nil-rate band and extending the nil-rate band from £325,000 to £500,000 to make the tax system fairer.
IGT is the worst tax of them all. We are taxed enormously all the way through our lives but work hard to own our own homes. Then when we die we are taxed again. Let children inherit their parents homes tax free. For some it’s the only way they will ever own their own property. Unfortunately our government wastes too much money, doesn’t generate any income of its own so when you look at its P&L the only income is tax. I’m not a Farage supporter but one thing he did say that made sense was that the government needs to look at ways to cut its own costs rather than just increase tax. I haven’t heard Reeves talk about one single way she is going to reduce costs yet.
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This 1000%
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100%
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Correct
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The wealthy elite?
Coming from a politician whose household income is over £250k a year?
Hardly my idea of impoverished working class.
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The main residence of someone who passes away should not incur any tax. They paid SDLT when they bought it. They paid council tax every year they lived there. They paid VAT on everything they brought into the house, after being taxed on every penny they earned in order to pay for the above. And when their family are burying them, they are paying tax on the casket, cars, flowers, service and wake and solicitor fees to work out the confusing probate and tax rules set out by the Government. This country taxes you from the moment you are born, and with these plans will tax you long after your death…
At the moment, our current family inheritance plans is when one of my parents passes away, their ‘ownership’ of the house will be split between the remaining parent and my brother and I. It will not be enough to give us a majority ownership to force any sale (not that we would) but enough to protect some of the estate of the remaining parent. They have worked, saved, invested and struggled to pay off their house and have money to live the retirement they want, and hopefully leave enough behind to give their children a nest egg for our retirement.
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It never pays to try and better yourself in life under Labour government. These people are not the ‘wealthy elite’ in many cases, they were people that started from the ground up working their fingers to the bone all the hours God sends to make a better life for themselves only to have it taken from them and their families in every which way possible. Despicable and disgusting.
The issue with wanting equality for all is that requires everyone to be pulling in the same direction, which is nothing short of herding cats! The promotion here is that it’s just not worth putting in the effort because as we are all going to end up equal at the end of it why would you bother?
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The NHS faces a cash crisis – so they give the junior doctors (sorry, RESIDENT doctors) a 22% pay rise whilst taking the Winter Fuel Allowance from pensioners. How ill this help the cash crisis?
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The cynic in me says by having less elderly people taking up NHS resources and beds… Not that I am in anyway saying it is a good thing, as I am fully aware all of the elderly will have loved ones, but somehow I doubt that soul-sucking politicians are concerned as it’s doubtful any of their elderly relatives will be affected by this!
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This is going to be unpopular – I imagine I’ll be downvoted to oblivion.
Firstly, I believe that paying tax should be considered an honour, not a penalty. If we could change the country’s perception of tax to that, then our whole world outlook would change.
I want good public services and I’m happy to pay my fair share towards them. I want a functioning NHS with world leading hospital care. I want schools that will educate the next generation to look after me in my dotage. I want safe roads and a rail system that can get me from A to B in comfort with the minimum carbon footprint. I want all of these things and they cost money.
I’m not rich, but I’m far from poor. I will gladly pay my fair share of tax and would be happy to contribute more than average because I am paid more than average.
With regard to property in general, we should ALL be taxed on the EXCESS profit that owning a family home provides us.
In my least condescending tone, please let me explain…
On average, property prices double every 12 years or so in the UK. Property in the UK outperforms all other investments that I can think of (not an expert). The increase in the value of property far outstrips normal inflation.
This profit is not earned, it is gifted to us by the system because it has been rigged this way for decades.
We are not building enough new homes, roads, schools, hospitals and etcetera.
Therefore house prices rise out of all proportion compared to everything else.
I repeat this is the system. The excess profit made on property doesn’t arrive because of skill or planning or even good luck. The system creates this excess money. It doesn’t BELONG to you because the system created it.
Interestingly, profits made from active development of other properties DO attract tax, even if you have been shrewd and clever.
The excess gain in value of the family home is a Brucey Bonus and it should be taxed.
The important thing though is that the tax raised from this should ONLY be used to build more houses and improve infrastructure. Under no circumstances should it be used to reduce council tax bills or fill in the shortfall for other services.
It should be used as the 20% deposit to allow the government (or councils, or RSLs or whatever) to borrow the remaining 80% so that they can build enough houses to actually meet demand.
Then property prices will stop increasing out of all proportion and the amount of tax paid will drop to zero because people will not be making excessive unearned profit.
I will sit here quietly waiting for the thumbs down to rack up 🙂
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Well said.
Leaving lots of money to your kids as you gasp your last on a hospital trolley in a corridor with little privacy or dignity in a severely underfunded NHS . That’s if an ambulance gets to you in time (Google died waiting for an ambulance and prepare to be shocked, it’s now so common. It rarely makes the newspapers).
Decent public services, safe streets, good education all cost money and paying your way is something to be proud of.
And yes I am a higher rate taxpayer who has paid income tax for 44 years, fully own my own properties through hard work.
We need to reset our attitude towards taxation.
You can have good public services or you can have cheap public services but you can’t have both.
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