Home News Property boom fuelling ‘hidden’ inheritance hit: ‘Crippling’ impact on hard-working people

Property boom fuelling ‘hidden’ inheritance hit: ‘Crippling’ impact on hard-working people


The Government has frozen it bands until April 2026, meaning more hard-working people will get caught in the net as a result of rising house prices.

An astonishing £570million was paid in IHT in July this year alone. The figure was the most ever paid in a single month, according to the Office for National Statistics.

Data also reveals the Treasury pocketed £2.1billion between April and July this year – an extra £510million compared to the same period last year.

A major factor in the windfall for the taxman was the number of deaths from coronavirus.

But it was also due to property inflation and the Government’s decision to freeze the level at which people start paying IHT.

As house prices continue to rise by around 10 percent, that means more families will have to shell out.

One expert said: “Most people see a rise in house prices as good news all around, but it can come with a hidden tax hit.”

There are currently two tax-free allowances relating to IHT. Each individual has a tax-free figure of £325,000 – known as the “nil-rate band”. There is an additional allowance of £175,000 — the “residence nil-rate band” — if people are leaving property to a direct descendant. The two add up to £500,000.

Tax is paid at 40 percent on any estate worth over this band unless a tax exemption or reduction applies.

Liability rules can depend on the marital status of the deceased and whether a direct descendent inherits.

It is possible for a widow or widower to pass on up to £1million tax-free because spouses inherit their partner’s tax-free £325,000 allowance and £175,000 main residence figure.

Tax experts confirm freezing both the nil-rate band and the residence nil-rate band until at least April 2026 is a driving force in the uplift of payments.

Comment by Martin Holdsworth

Time to face home truths

Millions of hard-working people face being hit by crippling inheritance taxes due to rising house prices.

In virtually all families, the biggest asset to be divided on death is a property. This can give rise to legal disputes.

We commonly see one of a number of grown-up children residing in the home at the time of their parents’ death.

With house prices increasing, the gap between what these children should pay their siblings to buy out their inheritance and what they can afford gets wider.

Inheritance tax (IHT) is paid at 40 percent on any estate worth over £325,000 unless a tax exemption or reduction applies.

Most people wrongly assume that assets have to be given away and that they then have to live for seven years to remove exposure to the tax. However, it is possible to take steps to mitigate some or all of the liability immediately.

We have helped to develop an online tool that enables people to assess their situation by generating a family risk report.

For more information go here

Martin Holdsworth is a legal expert

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