As widely expected, the Chancellor amounted major changes to inheritance tax in today’s Budget.
From 2017, the Treasury will phase in a new £175,000 allowance for a person’s home when they leave it to their children or grandchildren. It sits on top of the existing £325,000 threshold which will be fixed until the end of 2020-21.
Both allowances can be transferred to a spouse or partner.
Those who choose to downsize will not not lose any of the allowance from the property they used to own.
However, Osborne said he will taper the relief away for estates worth more than £2 million.
Andrea Rozario, chief corporate officer at Bower Retirement Services said: “The £1 million inheritance tax threshold will end a lot of unnecessary confusion about retirement planning with people focusing on beating IHT at the expense of their own comfort in retirement.
“Homeowners who are asset rich but cash poor should be concentrating on how best to ensure they maximise their income in retirement and property wealth should be part of the solution. Our advisers’ experience, is that increasingly customers are less concerned about leaving an inheritance as very often their children are more concerned with the quality of life of their parents in their remaining years rather than their own possible inheritance.
“The furore on IHT is slightly out of proportion – around one in 10 estates currently pay the tax which is not insignificant but is not the biggest issue in retirement. There is concern that the new threshold will encourage people to stay in their homes in order to ensure as big an inheritance as possible. That will not help the housing crisis in the country and nor is it necessarily the best use of their assets. Bigger houses need a lot of maintenance and funding that will be challenging from pension income alone.”
