While rising property values may seem like good news, as prices go through the roof it could land you with a large Inheritance Tax (IHT) bill.

The latest data from HM Revenue & Customs (HMRC) show that the average IHT tax bill stood at nearly £210,000.

IHT is a charge on the value of the estate of someone who has died and comprises all their assets, from property to investments and vehicles.

The current threshold stands at £325,000, below which you do not pay anything except in certain circumstances.

A 40 per cent tax charge then applies to anything over that value if no planning is undertaken, such as gifting to a charity for example.

The £325,000 threshold may be increased if you leave your home to a direct descendant such as your children or grandchildren, in which case further residence nil-rate allowance of £175,000 takes your tax free limit to £500,000 before tax, or potentially up to £1million if you are a surviving spouse or civil partner.

As property values are driven up people who are leaving a home as part of an estate could find they have assets of a value that is chargeable to IHT.

The new figures from HMRC, which are taken from the 2018/19 tax year, show that the average IHT bill rose by six per cent compared to the previous year.

The sudden rise in house prices may mean that more individuals face an IHT bill if they leave property or other assets to beneficiaries – despite the increase to the residence nil-rate threshold.

Your tax liabilities can be impacted by any number of things, rising house prices being just a single point of influence, but it’s unfortunately not often the case that tax bills shrink – rather, the opposite.

Not all is lost, however. There are, as always, opportunities to undertake tax planning where the assets you have accumulated throughout your lifetime are concerned.

Inheritance Tax planning: points to consider

Where IHT is concerned, it’s never too soon to put plans in place to mitigate your liabilities, and to ensure that those you leave behind receive what you intend.

When it comes to the various strategies individuals have at their disposal, consider the following:

  • Do you have a valid Will? Without one, the rules of intestacy will apply, and these tend not to be the most tax-efficient.
  • Can you utilise the residence nil-rate band, or a spouse/civil partner exemption?
  • Have you utilised your annual allowance in respect of making gifts out of your estate?
  • Can you plan to make a charitable donation upon your death?
  • Have you made, or do you plan to make any potentially exempt transfers (PET)?
  • Do you have investments that attract Business Relief (BR), for example?
  • Could you benefit from creating a trust?
  • Have you considered how you are utilising any pension funds?

To disregard these points entirely, would be to potentially hand over more than is necessary to HMRC. Proactive planning is essential if you are to take control of what happens to your estate and assets after your death.

How can George Hay help?

We share your concerns about paying IHT and the complexities that accompany the regime. With our years of experience, knowledge of your circumstances and careful tax planning, those complexities can easily be overcome. 

If you’d like to speak to one of our team about Inheritance Tax and Estate planning, call 01480 426500 or email huntingdon@georgehay.co.uk

Link: Average IHT bill now above £200k

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