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New IHT band will exacerbate housing crisis

iht  inheritance tax  on gold...
iht inheritance tax on gold...



We all know there is a housing crisis and we all know the reasons for it; soaring prices, lack of building, buy-to-let, and inability to scrape together a deposit.

The government has said it wants to tackle the problem so why has is it planning to introduce a new band of inheritance tax (IHT) that will encourage older people to hoard bricks and mortar and keep the housing market illiquid.

Currently everyone has a nil rate band of £325,000 on which they don't pay 40% but the Tories want to add an additional £175,000 band that can only be applied to your home. This means individuals could pass on a home worth £500,000 tax-free and a couple could pass on a £1 million home IHT-free.

Essential guide to Inheritance Tax

The plan is to no doubt placate the Tory voters in London and the South East who have seen their property value rise above the nil rate band but we should be encouraging older people to stay in their big expensive homes, which is exactly what this policy does.

If you're an older couple who has a £1 million home and you downsize to a £400,000 home, and for arguments sake you put the £600,000 in the bank, the money in the bank is now part of your estate for IHT purposes. Whereas if you'd stayed in your big family home it would be outside of IHT.

So you can see how this policy has the propensity to clog up the property market further. Research by Hometrack has found the average property only changes hands once every 21 years and if you have a tax incentive to stay in your home then that number is likely to rise.

Essential guide to Inheritance Tax

Better changes needed

On top of IHT reform we still have stamp duty hanging over us and despite a big change to the way stamp duty is levied last year, it is still effectively a tax against buying and selling. It is a tax whose main duty is to discourage people from selling their home and buying another one.

Shelter has said 50% more young people will be priced out of property by the end of the parliament, with the number of homeowners aged 25-to-35 reducing from 1.2 million to 616,600 in five years.

So once again, why is this government skewing its policies towards older generations? You could argue that an extra IHT band will mean there is more for younger generation to inherit and yes, that's technically true, but the real question is when will they inherit it?

With people living longer, those 25-to-34 year olds could be in their 60s by the time they inherit the family home, and that is arguably far too late to solve their own personal housing crisis.

Election 2015: David Cameron Vows to End Inheritance Tax
Election 2015: David Cameron Vows to End Inheritance Tax


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Pay less tax: ways to reduce IHT

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