Chancellor to scrap IHT relief on family homes?

The Resolution Foundation, a left-leaning think tank, has suggested there is a “strong case” for scrapping the residence nil-rate band. Since its introduction in 2017, for married couples with children, this can shield up to £1 million from inheritance tax.

Currently, the residence nil-rate band along with the basic nil-rate band allows individuals to shield up to £500,000 of their estate from inheritance tax and £1m for a couple, with spousal exemption.

Rachel Reeves, Labour’s Shadow Chancellor, has long been critical of tax breaks introduced by Conservative governments. In a 2011 article for The Guardian, she argued that such policies disproportionately benefit the wealthy, while offering little to ordinary families. She highlighted that raising the inheritance tax threshold to £1 million for couples would affect just 0.04% of households in England and Wales, while essential public services faced cuts.

Without the additional allowance, the threshold would drop to £650,000, potentially exposing many families to a 40% tax on estates above this limit. For example, a couple with an £800,000 home and £200,000 in other assets could face a £140,000 inheritance tax bill if the relief were abolished.

The sharp rise in property prices over the past decade has dragged an increasing number of families into the inheritance tax net. What was once considered a tax targeting only the wealthiest is now affecting a broader portion of middle-class families. With the continued increase in house values, more estates are becoming subject to inheritance tax, further raising concerns among families who rely on the allowance to mitigate these rising tax liabilities.

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