Family fortunes

Posted on: 17 July 2015 by Steve Wanless

Don't believe all you hear! It’s one of those sayings that’s worth remembering when listening to politicians, especially those with financial power.

George Osborne

George Osborne gained deserved respect for his performance as Chancellor of the Exchequer during the Coalition years; his pension’s revolution marked him down as politician of vision, perhaps even a future Prime Minster.

Don’t forget that David Cameron had ruled out a third term in Downing Street, although his exact words might be open to some interpretation.

“I’ve said I’ll stand for a full second term, but I think after that it will be time for new leadership. Terms are like shredded wheat; two are wonderful but three might just be too many,” explained the prime minister.

Would Cameron lead the Tories at the next General Election? “No. I think I’m standing for a full second time."

How that’s going to work is anyone’s guess. If the new leader is not in place by election time, then he won’t be in place until months into the new government. Also, jockeying for position in the lead up to an election might do little for party harmony, or the party’s chances.

Will it be Boris Johnson, Theresa May or Osborne – or will an unfancied outsider rise from the political pack through talent, circumstances or events?

Osborne is in pole position, especially if his promises about reducing and clearing the deficit materialise.

Once of the eye-catching headlines from his first budget as a Tory chancellor in July – the party’s first since 1996 – was the raising of Inheritance Tax (IHT) to £1 million, as promised as far back as 2007, when the threshold was £300,000.

At the time, Osborne’s IHT daring spooked Gordon Brown into postponing a General Election that Labour would probably have won!

Unfortunately, Osborne is now showing Brown-like tendencies, where the reality of his promises and polices does not match up to the headlines.

Take the new £1m IHT threshold that has been lauded from Tory pillar to post, with claims it is “a promise made, a promise kept.”

The IHT threshold is not being raised to £1m – it is being raised to £500,000 per person. The 2007 announcement vowed to raise the individual allowance from £300,000 to £1m.

It might be £1m per married couple, but that’s not the same thing or what was promised originally.

Even the lesser amount of £500,000 is not guaranteed.

If you don’t own a house, your IHT threshold is not £1/2m; if you don’t have children, you don’t get the £1/2m, either – nieces and nephews don’t count.

You must have a house and children if you want more than the current threshold of £325,000, which the chancellor had quietly frozen by a further three years to 2021 in the budget.

Don’t forget this extra £175,000 property exemption doesn’t start until the 2017-18 tax year – and even then it is only £100,000. It won’t reach the £175,000 promised until 2020-21, but which time David Cameron will have left the building!

After that it is only going to rise in line with the consumer prices index.

The increase is little good for those couples with Estates worth over £2m, either; the increase will taper away and eventually disappear around £2.7m.

Apparently, the chancellor is going to create new rules to protect that property exemption if couples decide to downsize.

What was wrong with just increasing the IHT threshold on estates to £500,000, so that individuals can make their own arrangements? How simple would that have been?

Why this complicated property “drag” anyway that penalises those who rent or don’t have children of their own; it is going to make financial planning and the life of Independent Financial Advisers (IFAs) a lot more difficult.

The Tories had promised to end IHT. Not anymore. In 2013-14 it raised £3.4billion – and Osborne’s deliberations have led to forecasts that it will reach £5.8bn by 2021.

Mr Osborne’s originally claimed in 2007 that his IHT changes would ensure “only millionaires pay death duties.” Eight years on, he has still to deliver.

What happened to the chancellor’s “we are all in this together” policy? By focusing so strongly on property in this way, neither is it likely to do anything to get the housing market moving or older people out of their large houses.

This budget was the first time Osborne had a free hand without the influence of his Liberal Democrat colleagues, especially Danny Alexander, the former chief secretary to the Treasury, and the ex-pensions minister Stephen Webb, who both lost their seats in the Election.

Maybe we are now finding out that they did a far better job than we gave them credit for at the time!

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