By Clare Munro, Tax Partner
David Cameron has announced a radical plan to cut inheritance tax, with a landmark election promise to protect millions of family homes from the “death duty”. His proposal is to raise the inheritance tax threshold to £1million if the Conservatives win May's General Election.
Under the current rules, inheritance tax is charged on estates worth more than £325,000, rising to £650,000 for couples because the nil rate band is transferable between those who are married or in civil partnerships. The Tory plan would raise the nil rate band to £500,000 by introducing a new zero-rate band of £175,000 on a main property. This would create a £1m limit for couples because, like the existing nil rate band, it would be transferable.
- The measure would be paid for by restricting pensions tax relief for those earning more than £150,000. The annual allowance, currently £40,000, would taper from £40,000 for those earning £150,000 a year to £10,000 for those on £210,000 or more.
- The new ‘family home allowance’ will be tapered away if people leave behind assets worth more than £2 million on death. For every extra £1 above £2 million the allowance will be reduced by 50p, so that it will be withdrawn entirely above £2.35 million. Estates worth more than this amount will be unable to take advantage of the new allowance.
Even if the Conservatives are not re-elected, the tax relief for pension contributions seems to be under attack: Labour has been saying that it will restrict pension contribution relief for those earning over £150k to basic rates. So it seems that, whatever the outcome on 7 May, the writing's on the wall for higher rate tax relief for higher earners. So, if you are earning above £150,000 it makes sense to take advantage of the current rules and consider making pension contributions as soon as possible.
For advice on the tax implications of pension contributions please contact me directly - firstname.lastname@example.org or 020 7490 7766.
Alternatively, for pension advice, please contact Neville Pereira at Lubbock Fine Wealth Management LLP.