Queen Elizabeth II 1926 - 2022

Property prices hike Inheritance Tax receipts: How will this impact you?

If you are a homeowner and the value of your property has increased, you might find it hard to see the downside.

However, the resulting hike in Inheritance Tax (IHT) receipts, might be sounding alarm bells if you are preparing or reviewing your Will.

The latest data from HM Revenue & Customs (HMRC) revealed that IHT receipts for the period between July-August stood at £2.9 billion – up 11 per cent or £0.3 billion higher than the previous year.

Why are rising property prices having an impact?

Generally, if the estate is valued above the Nil-Rate Band threshold of £325,000, the standard rate of 40 per cent IHT will be due, unless other reliefs are applied.

Approximately one in 25 estates are required to pay this tax, and residential property is often the most valuable asset in an estate.

Fluctuations in the property market have seen house prices rocket across the UK, with the average house price increasing by 7.8 per cent in the year to June 2022, according to the ONS.

How can tax planning help your loved ones?

If the value of your estate, including property, continues to rise you could see its value creeping above the standard £325,000 threshold.

But there are steps you can take to minimise the impact on the individuals inheriting your estate.

For example, the Nil-Rate Residence Band allows you to increase the tax-free threshold by £125,000, to £500,000, where your main residence is left to a direct descendant.

Like the standard Nil-Rate Band, any unused allowance can be transferred to a spouse or civil partner, which means that combined, you might be able to pass on up to £1 million to beneficiaries if you meet the right criteria.

Alternatively, leaving at least 10 per cent of the estate to charity could reduce the rate of IHT that is due to 36 per cent on certain assets.

These are just some of the away that you can lower your IHT bill, but they require careful planning and a carefully drafted Will.

For advice on tax planning, contact our team today.

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