Labour is coming for your family home

Telegraph

a day ago

Given the likely size of the fiscal black hole the Chancellor is facing in her autumn Budget, the summer was always going to be filled with speculation about which taxes she will put up.
With the repeated insistence from ministers that the Government will not increase them for 'working people', much of this speculation has been on how to squeeze as much as possible out of the wealthier in society.
I wrote for The Telegraph a few weeks ago that although a specific wealth levy has been ruled out, there were plenty of other ways the Chancellor could target richer households, highlighting inheritance tax (IHT) as one of the other options.
So it is not that surprising that, in the last few days, it has been reported the Treasury is looking at capping the amount that can be given IHT-free during one's lifetime.
This is something that is often examined inside the Treasury – but it hasn't been pursued, because it would raise relatively little and be incredibly hard to actually enforce.
What is more surprising is that other, much more significant and politically toxic changes hinted at in recent stories have so far been ignored.
The Labour source who started all this speculation said something far more worrying than a cap on unlimited tax-free gifts.
They said: 'With so much wealth stored in assets like houses that have shot up in value, we have to find ways to better tap into the inheritances of those who can afford to contribute more.'
This is a major steer that the Treasury is looking at how to make us pay more tax on the family home that we might inherit.
When I was at the Treasury, we looked very hard at IHT. Not to increase it like Labour will, and indeed have, but at ways to cut it.
In the run-up to the autumn statement of 2023 and the spring Budget of 2024, we examined all of the options for reforming the various thresholds, bands and exemptions. Treasury officials were in favour of widening the scope of IHT so that more people paid it. We would only even contemplate that if the money raised was used to reduce the overall rate.
In the end, however, we prioritised cutting National Insurance and didn't think it was fair to make some people pay IHT who wouldn't otherwise have done so, even if they would be paying at a lower rate than before. We've seen the terrible consequences inflicted on the farming community of a government that made a different choice in this regard.
But it wasn't just agricultural property relief on the list of exemptions or thresholds officials suggested reforming. The residence nil-rate band was also always in these discussions. It is this residence band that is clearly now in the firing line. Getting rid of it would be the easiest way to tax 'houses that have shot up in value'. But it would also be political suicide.
At the moment, IHT is not levied on assets worth up to £325,000. On top of this basic nil-rate band, there is a £175,000 residence nil-rate band, which is applied if someone leaves their home to their direct descendants.
So an individual leaving their house to their children won't pay IHT on their assets worth up to £500,000, and for a couple this is doubled to £1m.
Scrapping it would mean that rather than a £1m estate being IHT free, this would fall to £650,000. Roughly 30,000 additional families a year would be brought into the IHT net, and the Treasury would raise about £2bn a year – but it would be catastrophic for grieving families up and down the country.
It is worth remembering that it was introduced to fulfil the Conservative pledge to exempt the family home from IHT. If someone has worked hard all their life, their family home shouldn't go to boost government coffers.
It should go to their family. If anything, the band should have increased in line with inflation, as many family homes will now comfortably breach the current rate, and so at least in part have IHT levied on them.
But ominously, at the time the IHT-free threshold was raised to £1m, it was described by Rachel Reeves as a ' tax break for a wealthy elite '. That showed a misunderstanding of the importance of the family home back then, when property prices were much lower than today. Now, after a decade of rising house prices, far more people will feel that leaving an estate worth £1m that includes their family home is well within their reach.
The idea that after they have passed away, when their children are still grieving, HMRC would come and grab 40pc of it is horrific and a massive attack on aspiration. Which is something Labour don't understand, and why we should all fear they'll do exactly that.