Mind the Gap
Heir Today, Gone Tomorrow
The rise in the inheritance tax threshold on main homes
will help those in the South most.
|Click to download as PDF|
The Chancellor increased the inheritance tax threshold (IHT) on main homes in the Budget. It was a popular move for homeowners – or rather their heirs! It’s another tax break for owneroccupiers and will affect a significant number of them. About 300,000 people over 65 were living in property worth at least £500k in 2012 and a further 900,000 over 75 living in property worth more than £250k. By 2021 when the policy is fully phased in many more will be better off.
The effect will be strongest in London and the South where property prices are already closer to the new thresholds, but it will benefit all owners of higher value property across the country, now and in the future.
While this is good news for heirs, there is a downside for housing supply if existing older owners stay in their homes in order to make the most of the IHT exemption. The government recognise this and have made provision that, if downsizing, the new allowance will be applied to the value of the previous home.
But that is just half of the story. Those whose properties haven’t reached the new IHT threshold level still have an incentive to stay put until prices rise. That blockage could exacerbate the lack of supply and prevent the best use of the existing housing stock.
The chancellor also removed tax exemption from non-doms who have been UK resident for 15 out of the last 20 years. Some commentators fear that higher value housing markets will suffer badly as non-doms leave the country, but that’s unlikely to be the case.
There were about 115,000 classified non-doms in the UK at the last count, but more than half already pay UK tax on all their income. Those who don’t can avoid doing so by paying a flat annual charge. Only 5,000 who have been UK resident for over seven of the last nine years choose to do this, so a much smaller number will have been resident for 15 of the last 20 years and will be affected by the change. In addition, long term residents have other reasons to stay in the UK other than just tax.
|Click to enlarge.|
|< < Previous Page||Next Page > >|