Tyrie pushes for changes to inheritance tax relief reforms
Proposals to extend inheritance tax relief for residential properties brought in by George Osborne this year have been criticised for being too complex.
Andrew Tyrie, chairman of the Treasury Select Committee, has written to the chancellor asking him to rethink the proposals.
He has suggested using the 2016 Finance Bill to clarify the changes, the first draft of which is expected tomorrow.
Tyrie said: “They are a mess of complexity and uncertainty. And they almost certainly don’t need to be, in order to achieve the government’s objectives.”
In the Summer Budget, Osborne laid out plans for a £1m tax allowance for married couples passing on property, called the residential nil rate band (RNRB), by 2020.
From 2017, the existing tax-free band for those passing on family homes will be increased gradually until 2020.
The policy is forecast to cost almost £1bn a year by the end of the current government.
Before the changes, there was expected to be a sharp rise in the number of families paying the tax over the next five years.
The reforms are meant to reduce the number of properties forecast to breach the inheritance tax threshold in 2020-21 by more than a third, to 37,000.
In 2014, the number to properties hit with inheritance tax was just over 35,000.
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The Institute of Chartered Accountants in England and Wales (ICAEW) has suggested the proposals be simplified by increasing the nil rate band, not just for property, to £500,000.
The ICAEW claims this would be simpler and any additional expense could be offset by reducing the £2m taper limit or increasing the taper rate for estates valued at over £2m.
There are also concerns that elderly home owners are being left uncertain of how rule changes will affect them. Tyrie said: “Until the downsizing rules are laid in statute – not likely to occur until later in 2016 – elderly homeowners will have no basis on which to plan. Many elderly homeowners will reasonably want to plan now. The more guidance that they can have in the next few months, the better.”
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Tyrie writes that he does not back any particular alternatives to the proposals, though he wants clarification in the upcoming Finance Bill draft, and changes made in the 2016 Budget.
He added: “Property price inflation has caused Inheritance Tax to bite on people who are by no means ‘wealthy’. The government is right to tackle the problem. The Finance Bill is the opportunity.”
The proposals to overhaul the inheritance tax relief for residential properties were first raised due to soaring property values around the country, especially in the London and the south east.