What Are the Implications Of Increasing House Prices On Inheritance Tax?

Posted on 10/08/16 by Sophie Fillmore

Last year the average price of St Albans properties increased by 11% to over £500,000. As a result, families that would not normally consider themselves as wealthy now face a potential inheritance tax liability

The liability only becomes apparent when a family member dies, but very often there are measures that could have been taken to improve the tax position, sometimes dramatically, to the benefit of successors.

START PLANNING WELL IN ADVANCE

Inheritance tax comes into effect when the value of the estate on death (property, investments and possessions) exceeds £325,000 per person or £650,000 for married couples and civil partnerships. Tax is at 40% of anything over the amount and HMRC‘s tax take is increasing.

The tax is far from straightforward and there are some complicated provisions which come into full force in 2020 to help with houses left to children.

PRACTICAL INHERITANCE TAX PLANNING

There are quite a number of measures that can be taken and it is very important that they are practical and appropriate according to family circumstances. While legislation makes it difficult to use the house itself to mitigate the tax, investments and other assets can be used in tax planning.

In some cases outright lifetime gifts may be made considered but this may be impractical if the wish is to benefit grand children and/ or if the investments are required to provide an income in retirement.

Sometimes setting up a family trust is most appropriate and this can provide the individual with a fixed lifetime income with the balance passing on death to the beneficiaries free of tax.
Other methods can involve reinvesting in plans that attract Inheritance tax business property relief (BPR schemes).These can include AIM shares and an ISA portfolio built up over many years can be made IHT’ efficient’ in this way while retaining the tax free ISA status. BPR schemes can also be used where there are health issues and/ or there is a Power of Attorney in place.

THE WAY FORWARD

It is often difficult to discuss these matters within families. Particularly where elderly relatives are involved sensitivity is required.

A consultation with a KDW adviser brings the all important necessary objective views to the situation. After the initial consultation, which is free, the adviser will make formal appropriate recommendations and see matters to a conclusion.