The Conservative Party has pledged to raise the effective threshold for inheritance tax for a married couple from £650,000 to £1 million. Many wonder how many people care, given that in 2010 only 2.6% of estates paid tax on the £650,000 threshold level.
Since then, despite the financial crisis and great recession that followed, property prices have risen considerably, bringing the percentage of estates affected today to at least 6%, and probably to more than 11.6% by 2019, according to the Office for Budget Responsibility (OBR), an advisory non-departmental public body.
David Cameron and colleagues believe those figures significantly play down the number of householders concerned about the tax.
Mr. Cameron’s inheritance tax pledge is aimed at voters in Tory heartlands. (Image: conservatives.com)
Currently, the inheritance tax threshold for a single person who has not been widowed is £325,000 – one quarter of all UK houses are now worth more than that amount.
Older voters will benefit
A considerable proportion of their target voters, the Tories say, many of them in their sixties, give away their assets and re-organize their affairs to bring their net worth below the inheritance tax threshold.
Raising the inheritance tax threshold would save many people in their 60s all that bother, they believe.
However, the new pledge would only have a really big impact among owners of properties in the South East and London, which are the only two parts of the UK where average house prices are higher than £325,000 – about £510,000 in London and £338,000 in the South East.
Even if the pledge hits mainly at Tory heartlands, it would probably still be affecting a large number of people. If the Conservatives were to raise the threshold in 2017, according to current house price inflation estimates, by then the 11.6% of estates having to pay inheritance tax would fall to 6%.
Tories want to be seen to be helping middle classes
The Tories will also be seen to be helping the middle classes but not the upper classes. People with estates worth more than £2.35 million will see no benefit. The upper class consists of the richest people in a country.
The tax cuts, which will cost the government more than £1 billion annually, will be mostly met by reducing the tax concessions on pension contributions to individuals earning at least £150,000 per year.
Mr. Cameron said:
“When you become a parent, absolutely everything changes. Everything you do is for your children. You’ve got this huge responsibility not just to love them but to provide for them. And though my children are still small, I know that never goes away, that when they’re in their twenties, thirties, forties – that desire to be there for them is as strong as ever.”
“You want to know that even after you’re gone, when you’re not on the phone and not physically there – you can still provide for them. That wish to pass something on is about the most basic, human and natural instinct there is.”
“That home that you have worked and saved for belongs to you and your family. You should be able to pass it onto your children. And with the Conservatives, the tax man will not get his hands on it.”
The independent Institute for Fiscal Studies says cutting inheritance tax for homes worth up to £1 million would disproportionately benefit the wealthy.
Video – Mr. Cameron talking about inheritance tax