Tuesday, 24 March 2009

Tories may change IHT early

The pledge to raise inheritance tax threshold to £1 million was first made by George Osborne to a party conference in 2007.

At the time it was seen as a populist measure.

Alastair Darling immediately responded by making the existing allowance transferable between married couples - effectively doubling the rate from £312,000 to £624,000 for a surviving spouse.

Despite Tory tax confusion over recent days, the IHT pledge has survived. Raising the threshold to £1 million will be in the party manifesto implying implementation in a first parliament.

But if the Tories also intend to raise top income tax to 45p then a question of relative importance will arise.

Without changing IHT, a single person's estate over £312,000 and a couple's estate over £624,000 will be hit by the rise in top rate tax.

So either IHT must change first, or the 45p tax and IHT change must be announced together. This means in 2011 or earlier.

But if wobblies in the party still flutter over the 'rich person's party' tag, there's still an adjustment they could make.

Namely, reverse the little spoken of decision to follow Labour's principle of a transferable allowance between married couples.

Under Tory plans, this actually raises the maximum threshold to £2 million rather than £1 million.

Then again, once the party's in power, perhaps no-one will bother to quibble.

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