PERSONAL ACCOUNT

Incoherent financial policies are nothing new for the Tories – ask George

Theresa May’s caring and youth-focused stance as she rounded off the Tories’ Manchester conference removed the party some distance from its former policies, now distant memories, where the aim was to secure the votes of the elderly and affluent.

Today it’s all about fairness and the younger generation. And so the controversial Help to Buy house purchase scheme gets another shot in the arm, and various changes are mooted to improve student finance (see Page 3).

Knee-jerk responses are where it’s at. As ever.

George Osborne in his tenure as chancellor introduced some of the most poorly conceived tax measures in decades. And – based on letters and emails we receive – families and their advisers are only just beginning to battle their way round them.

Nowhere is this more the case than with the new inheritance tax exemption attached to family homes. The innate complexity of this is made many times more mind-boggling by the fact that it is being introduced in stages from this tax year (2017-18) to reach full implementation in 2020-21.

There’s one part of it that simply defies comprehension. This is where “downsizers” – those for example who sell expensive family homes and move somewhere cheaper or into care – are allowed to crystallise part of their inheritance tax exemption and carry it forward, applying it to other assets.

A bit of background to the horror story. In 2007 Mr Osborne first raised in vague terms the idea of lifting the inheritance tax threshold (the limit above which death duties of 40pc apply) to £1m. The Coalition put paid to the project, but it resurfaced in 2014 with a renewed pledge from David Cameron.

What resulted was the staggeringly ill-conceived RNRB (residence nil rate band), which applies to family homes when bequeathed to “direct descendants” – that means children or grandchildren, plus a few other special cases. (Those with no children get zero benefit, to the understandable annoyance of a great many readers of this newspaper.)

No sooner had this policy had been hatched than it occurred to Mr Osborne’s advisers that it might deter older homeowners from selling large family homes and downsizing to cheaper, smaller properties. Given the chronic shortage of family properties, this would be disastrous, so sticking plasters were instantly demanded – and the “downsizing addition” was born.

Please take a deep breath ahead of my attempts to explain in broad terms what HMRC admits even it cannot adequately convey. Every individual will by 2020-21 be able to pass on £175,000 worth of the family home to direct descendants in addition to their £325,000 general individual nil-rate band. Got it? So when a couple combine their

Muddled: Conservative policies have a history of unintended consequences and complications