In a move which he has been talking about since the 2007 Conservative party conference, Mr Osborne said he would make good on a promise in the 2015 election manifesto.
Mr Osborne told Parliament today: “You can pass up to £1 million on to your children free of inheritance tax. No more inheritance tax on family homes.”
This cut will be paid for by changes set out to pensions tax relief for higher earners. From next year their Annual Allowance will be tapered away to a minimum of £10,000.
From 2017, a new £175,000 allowance for homes left to children or grandchildren will be phased in. This is to sit on top of the existing £325,000 threshold which will be fixed until the end of 2020-21. Both allowances can be transferred to a spouse or partner.
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He said: “The wish to pass something on to your children is about the most basic, human and natural aspiration there is. Inheritance tax was designed to be paid by the very rich.
“Yet today there are more families pulled into the inheritance tax net than ever before – and the number is set to double over the next five years.
“It’s not fair and we will act. And from today we’ll make sure those who choose to downsize do not lose any of the allowance from the property they used to own.
“But we will taper the relief away for estates worth more than £2 million.”