Rising house prices could set off wave of higher Inheritance Tax bills

23rd September 2013

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With house prices once again on the rise experts are calling on homeowners to check their inheritance tax (IHT) liabilities as thousands have been already hit with a combined ‘death-duty’ bill of more than £3bn in the past year writes Philip Scott.

According to the latest figures from the Office of National Statistics, house prices in England have actually hit a record high, where its house price index is now 0.9% up on where it was at the previous peak in January 2008. The barometer for the rest of the UK is just shy of this.

Unsurprisingly large rises in London and the South East are distorting the figures for the country as a whole but upticks across the UK have been recorded and during the 2012/2013, some 20,000 families were hit for a total of £3.1bn in IHT charges.

There is now a growing concern among many quarters that another house price boom and bust is en route. Recently, the trade body, the Royal Institution of Chartered Surveyors (Rics), has just called on the Bank of England to cap house price growth to 5% a year while Business Secretary Vince Cable has also expressed his concern.

Property website Rightmove, earlier this year predicted that the average national asking price would rise by 2% this year but, the group now anticipates that prices are set to increase by 6%. As such, with house prices on the rise once again, and with the IHT threshold set to remain frozen at £325,000 until 2019, the need for proper planning is becoming increasingly more important.

Chartered independent financial adviser, The Private Office, points out that, with the average detached house price currently standing at £270,000 many will find themselves dangerously close to the nil-rate band and/or liable to IHT based on the retail market value of their home alone. The group urges that during the last housing boom the largest ever amount, of £3.8bn was paid to the taxman, much of which might have been avoided with effective IHT planning.

Joseph O’Shea, partner at The Private Office and chartered financial planner says: “Most people would prefer to see their lifetime wealth and achievement passed onto their families instead of the tax man. The good news is that with forward thinking, careful planning and seeking good financial advice, it’s possible to mitigate IHT and make a substantial difference to the amount you pass on”.

Inheritance tax right now

IHT is typically paid on an estate when somebody dies. It is however also sometimes payable on trusts or gifts made during someone’s lifetime. If an estate is valued at less than the threshold, presently £325,000 in 2013-14, there is no liability but for anything over that amount, tax is paid at a rate of 40% per cent on the amount over the limit, or 36 per cent if the estate qualifies for a reduced rate as a result of a charitable donation.

Increased threshold for married couples and civil partners

Since October 2007 married couples and registered civil partners can effectively increase the threshold on their estate when the second partner dies – to as much as £650,000 in 2013-14. However executors must transfer the first spouse or civil partner’s unused IHT threshold or ‘nil rate band’ to the second spouse or civil partner when they die.

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