Increasing the inheritance tax threshold could damage the housing market in Kent as homeowners rush to downsize to avoid large fees.

The Chancellor George Osborne announced in the budget on Wednesday that married couples will not have to pay inheritance tax on properties worth less than £1 million, which will be phased in from April 2017.

However this could trigger a surge in large property owners in London and the outskirts scrambling to downsize to take advantage of the higher threshold.

Rick Schofield, partner at Wilkins Kennedy accountants in Ashford, said it could price out first-time buyers and push other homes out of reach for those looking to upsize.

He said: “Property prices in London vary significantly compared to elsewhere in the UK, so whilst people in the South East may try to move so they can fall below the inheritance tax threshold, this could also impact on the availability of housing for those trying to move up – or even first time buyers.

“Perhaps if these measures coupled with changes to the taxation of buy to let properties making that less tax efficient this may encourage buy to let owners to sell their properties and free up housing for the owner occupier market.

“In turn this may prevent any further squeeze on the housing market.”

Currently, inheritance tax is charged at 40% on estates over the tax-free allowance of £325,000 per person. Married couples and civil partners can pass any unused allowance on to one another.

The government will increased this allowance by bringing in a new family home allowance which will allow relatives to pass their home on to their children or grandchildren tax-free after their death. This will be phased in from 2017-18.

Added to the existing £325,000 inheritance tax threshold, it means the total tax-free allowance for a surviving spouse or civil partner will be up to £1 million in 2020-21.

The allowance will be gradually withdrawn for estates worth more than £2 million.

The move was welcomed by Nicola Plant, partner at law firm Thomson Snell & Passmore, based in Tunbridge Wells and Dartford.

She said: “This is really good news for many middle income families as many have seen the value of their homes increase steadily and push them into the inheritance tax bracket.

“Homeowners in the South East have effectively been taxed at a disproportionate rate to other parts of the UK and this goes someway to redressing the balance.

“Of course, it would have been much simpler if the Chancellor had just uplifted the IHT threshold from £325K to £500K, rather than adding further complexity to the system by introducing a new allowance.”