The prime minister announced his intention to increase the tax threshold to £1m from £325,000 in Peacehaven, Sussex, on Monday.
The popular policy was first proposed in the Conservative 2010 election manifesto, but the PM said it was abandoned during coalition talks with Liberal Democrats.
The IHT threshold was set at £325,000 under the last Labour government and has remained at this rate ever since. In 2007 reform allowed this amount to be transferred to a spouse, creating a maximum threshold of £650,000.
But Cameron told Saga members that “inheritance tax should only be paid for by the rich”.
“It shouldn’t be paid for by people who have worked hard and saved, and bought a family house in, say, Peacehaven,” he added.
"Archaic"
Neil Chadwick, technical manager, RL360, said the current inheritance tax threshold was “archaic” and got “blown into the weeds” when compared to house prices in affluent areas.
“Originally you associated inheritance tax with the wealthy but now that is different because a wider group of people have to pay it,” he said.
“This change would mark a shift to the old days where higher income people with a lot of money were mainly affected.
He added the various IHT products and schemes on the market would still have a place following Cameron’s announcement because the new threshold is not guaranteed to come into place.
“With tax planning you don’t wait until thresholds have been reached,” said Chadwick.
“The current government say they are going to do this but if a future government change their policy or don’t allow it to happen then it won’t be an issue.”
Phil Oxenham, head of proposition marketing, Skandia, said that, while it would benefit the public by raising financial planning awareness, it was “headline grabbing” and may not come to fruition.
“Hopefully it will raise awareness of how low the nil-rate band is, as £325,000 is still a large amount of money to a lot of people,” he said.
“The increase would be a considerable jump, but the cost to the treasury might be too great, resulting in its cancellation; Cameron has said it is something that is being planned on a long-term scale.
“It would be great if it did come to fruition as less people would have to pay inheritance tax but you would have to be a brave man to bet on it.”
Mark Pearce, partner and tax specialist, Thomas Eggar, said the current inheritance tax system needed to be changed and proposed further changes.
“For most people, their most valuable asset is often the family home and families are often left no option but to sell the family home on death in order to meet the tax demand,” he said.
“A simple solution would be to take the main home out of inheritance tax.
“A similar exemption already exists for capital gains tax, so aligning the taxes should not be difficult and would be far more palatable to the hard-working families that Cameron is targeting, rather than a vague promise to do something after the next election.”
