General Election 2015: Tax breaks on inherited wealth ‘will mainly benefit well-off Southerners’

David Cameron was forced to defend the Conservatives’ latest proposal to cut tax on inherited wealth, as analysis showed that the only people to benefit will be the comparatively well-off, living mostly in the prosperous South of England.

The Tories have pledged to make the first £1m of anyone’s estate exempt from inheritance tax, which is payable on wealth passed on after a person dies.

But more than 90 per cent of estates are already exempt, because there is an allowance of £325,000 per individual, or £650,000 for a married couple, already in force. That is more than the average value of a house anywhere in the United Kingdom except the largely Conservative-voting areas of London and the South-east. The average house price in London is £510,000.

Analysis by the Institute for Fiscal Studies calculated that over the next few years the change would give about 50,000 families an average tax break of £20,000.

A married couple owning a home worth between £1m and £2m could benefit by as a much as £140,000.

The Tories say their policy would help parents fulfil their life-long wish to provide for their children.

“That wish to pass something on is about the most basic, human and natural instinct there is. That home that you have worked and saved for belongs to you and your family. You should be able to pass it on to your children,” the Prime Minister told a campaign event in Cheltenham.

But a Treasury memo leaked last month warned that increasing the inheritance tax threshold would encourage people to invest more of their money in property – pushing up house prices – and would add to inequality because most beneficiaries would already be comparatively well-off.

The Conservatives included a similar promise in their manifesto for the 2010 election, but were prevented from carrying it out by the Liberal Democrats. Their decision to revive the idea drew a scathing response yesterday from Nick Clegg.

“It shows politically they are a party in panic because I think it’s dawning on them – something I think which dawned on the country some time ago – that they’re not going to win,” he said.

The Conservatives were also challenged on where they proposed to find the £8bn they have promised to invest in the NHS, when they are also committed to tax cuts and to cutting the deficit.

Asked repeatedly by the BBC interviewer Andrew Marr, the Chancellor, George Osborne, refused to answer, except to say that the Conservatives had a “balanced plan” for handling public finances.

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