The future of inheritance tax with rising property values
The passing of a loved one will be a difficult time as you come to terms with your loss and look to make arrangements for their estate. During probate administration, it will become clear whether inheritance tax (IHT) is due on the estate, and more people are finding that they fall into this bracket with the rising value of property. Bill Pollinger, Private Client Executive, explains IHT and how you can prepare now for any eventuality.
What is Inheritance Tax (IHT)?
IHT is a tax on the estate (including property, possessions and any money) of a deceased person. Thresholds are the limits where any beneficiaries of an estate start to pay inheritance tax, and it depends on whether the person was single or married at the time of their death. The current threshold for IHT is £325,000 per person; if a single person dies their beneficiaries will only start to pay IHT on the estate if it is valued over that amount.
If you leave your property to your children (including step-children, adopted or foster children) and grandchildren, then you may be able to use the Residence Nil Rate Band whereby the individual threshold goes up to as much as £450,000.
There are other ways to reduce the amount of tax paid through ‘taper relief’ for property given as a gift while a person is still alive but only if tax becomes payable on the gift on your death. Your beneficiaries can reduce the tax bill with Business relief, which lets some assets be passed on without IHT being charged.
Married couples can leave their beneficiaries up to £650,000 tax free, but only as long as the first person to pass away leaves everything to their partner. Anything over this limit is subject to a 40% tax bill. Any ‘unused’ threshold limits such as the Residence Nil Rate Band can be added to your partner’s threshold if they qualify.
It is important to note that IHT is only due on the amount above the allowance, not the whole sum.
Property prices on the rise
Those numbers may seem like a lot, however when considered with figures from the gov.uk government website which puts the average price of a house in the UK at approximately £234,794 in January 2017, it’s easy to see that many people who own their own home could be closer than they thought to the limit. The total value of your estate is not just based on your property but could also include ISA accounts, the family car, jewellery, bank accounts etc.
What about the future?
The property market will always fluctuate, but one thing that you can keep in control is how your estate will be distributed at the time of your passing. With proper estate planning at the time of making your Will, you can be advised as to the best course of action for you and your family.
If you are considering making a Will and would like advice on estate planning and IHT you can visit our pages of the website here or contact Bill and the Private Client team on 01329 222075 or email firstname.lastname@example.org.