PER­SONAL AC­COUNT

The Daily Telegraph - Your Money - - FRONT PAGE - Richard Dyson

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

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