AN independent thinktank has warned David Cameron’s plan to make family estates worth less than £1 million exempt from inheritance tax could help drive up house prices.
The respected Institute for Fiscal suggested the policy would affect a relatively small number of estates each year and could have unintended condequences.
IFS director Paul Johnson said: “It is only a very small proportion of all estates who will be affected. Less than 10 per cent pay inheritance tax at all at the moment.
“This particular change will probably reduce the inheritance tax liabilities of between 20 and 30,000 estates each year, that’s out of something like half a million people who actually die each year.”
He added: “But it is rather odd to give this special treatment to housing given that owner occupied housing is already extremely tax privileged and this will only increase the bias that we have towards putting your money in a house, to inflating potentially the value of housing, without dealing of course with the lack of housing which is the thing that is driving up the value of private residences.
“Anything that does something like this, which increases the tax privilege associated with an asset like housing will drive the price up in the long run.”
The Conservatives would introduce the change by adding a £175,000 “family home allowance” to the existing £325,000 inheritance tax allowance with both transferrable between married couples and civil partners.
David Cameron argued without action more family homes would be hit by inheritance tax as house prices rise.
Speaking at a campaign event, he said: “When you become a parent, absolutely everything changes.
“Everything you do is for your children. You’ve got this huge responsibility not just to love them but to provide for them.
“And though my children are still small, I know that never goes away, that when they’re in their twenties, thirties, forties - that desire to be there for them is as strong as ever.
“You want to know that even after you’re gone, when you’re not on the phone and not physically there - you can still provide for them.
“That wish to pass something on is about the most basic, human and natural instinct there is.”