Inheritance tax to be scrapped on homes worth up to £1m

George Osborne will unveil plans in the Budget to end inheritance tax on properties worth up to £1m, at last fulfilling a Conservative pledge first made seven years ago.

He is expected to tell MPs on Wednesday that the threshold at which the tax is levied will rise for couples from £650,000 after April 2017.

The broad proposals were in the Tory manifesto but have since been tweaked to ensure that pensioners will be able to downsize their home without worrying about their offspring missing out on the tax break.

The allowance will be transferable on the death of one spouse and added to the existing £325,000 transferable allowance to bring the tax-free total up to £1 million.

But on properties worth more than £2 million, the allowance would be gradually tapered away until it was worth nothing to those with homes worth more than £2.35 million.

The inheritance tax policy will be funded by limiting the amount of tax relief on pension contributions given to those earning more than £150,000 a year.