Why there is an extra inheritance tax exemption for family homes?

This is the final post in my series looking at some of the strange quirks of the tax system.  Following on from the last one, which dealt with the introduction of the seven-year rule for IHT gifts to children, this one too is about inheritance tax – in this case, why we have an additional exemption for the family home. As (almost) always, there is a whiff of political grapeshot about this…

Back in October 2007, when George Osborne was the Shadow Chancellor, he told the Conservative party conference that if his party won the next election he would raise the IHT threshold to £1m, adding, “This means we will take the family home out of IHT.” Essentially, this was a political manoeuvre to ruffle the feathers of the then Labour party leader, Gordon Brown, who was planning to hold a snap election. It worked, because Brown called off his plans.

However, by 2010, after the Conservatives came to power jointly with the Liberal Democrats, the economic situation had changed vastly. Mr Osborne, as incoming chancellor, abandoned his promise (surely not – a politician breaking a promise!) but blamed it on his coalition partners. By way of a sop, the £175,000 “residence nil-rate band” was introduced, although it is, in reality simply a half-hearted attempt to live up to his original promise.  Still, better something than nothing…

Vivian Linstrom, M&S Accountancy and Taxation

This, and the other articles in this series, are based on a very interesting article in the Daily Telegraph’s business pages that looked at many different, quirky aspects of tax.

Contributing Advisors