Cameron Inheritance Tax Cut Would Push Up House Prices, IFS Says

Ed Miliband And David Cameron
Labour leader Ed Miliband and Prime Minister David Cameron. With less than a month to go until the election, polls continue to show the two largest parties almost tied. Photographer: Ken McKay/ITV via Getty Images

David Cameron’s plan to lower U.K. inheritance tax and compensate for it by increasing tax on the pensions of the wealthiest was described as being likely to complicate the system and raise house prices.

The prime minister promised Sunday to raise the inheritance-tax threshold for couples to 1 million pounds ($1.5 million). If his Conservative Party wins the May 7 election, it will increase the current limit of 650,000 pounds for a couple with an additional 175,000-pound allowance for each partner when leaving their primary residence to their heirs.

The proposal was attacked by Cameron’s Liberal Democrat coalition partners as a sign of his being more concerned with the wealthy than with poorer voters, and by Paul Johnson, director of the independent Institute for Fiscal Studies as likely to push more money into housing.

“It is rather odd to give this special treatment to housing, given that owner-occupied housing is already extremely tax privileged,” Johnson told the BBC. “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.”

Johnson said it would affect 2 percent of estates each year.

The IFS also criticized the way Cameron proposed to pay for the tax cut with restrictions on pension tax relief for Britons earning more than 150,000 pounds annually. In a study published on its website, the body said it would increase the marginal tax rate for those earning between 150,000 and 210,000 pounds a year to 67.5 percent.

Elsewhere on the campaign trail, Conservative Chancellor of the Exchequer George Osborne refused to say how the Conservatives would fund a promised 8 billion-pound ($12 billion) increase in funding for the National Health Service.

‘Difficult Decisions’

“Because we have this balanced economic plan, because we are prepared to take difficult decisions in other parts of government, we can go on increasing the money to the NHS just like we did in the last parliament,” Osborne said.

“They appear to believe they’ve got some historical reputation that allows them to make up numbers,” Liberal Democrat leader Nick Clegg said.

Clegg set out his Liberal Democrat Party’s spending plans on Sunday, including offering more details about how the party’s “mansion tax” on high-value properties would work.

When the party first proposed this in 2009, it said it would raise 1.7 billion pounds. Despite property prices having risen around 50 percent since then, the amount the party expects to raise has fallen to 1 billion pounds.

The Liberal Democrats set out the maximum levels they would charge for each band of property values, starting at 2,000 pounds a year on properties worth between 2 million pounds and 2.5 million pounds, and rising to 9,000 pounds a year on properties worth between 4 million pounds and 5 million pounds.

The party will on Monday set out a series of proposals to make life easier for consumers, including forcing energy companies to let people switch supplier within 24 hours.

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