Towry sounds IHT warning

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inheritance

Significant rises in the property market over recent years are pushing many people into larger inheritance tax bills, according to Towry, the wealth adviser.

The nil rate band – a personal tax-free allowance on the value of an estate – of £325,000 was introduced in 2009. It will remain frozen until 2019 despite the resurgence in property prices across the UK, and the Prime Minister’s calls for the rate to be raised to £1m. For a single person, any assets above this threshold may be taxed at 40% on death.

Initially the freeze on the nil rate band did not attract much attention as the average UK house price at the start of 2009 was £195,000 and falling. Five years on, the market has recovered and the average UK house price now stands at £253,000 – an increase of 30% on 2009. In London, the potential impact on an inheritance tax bill is even more marked with an average house price of £458,000.

With one in ten UK households sitting on assets totalling £1m or more, the freezing of the nil rate band will see more money finding its way to the taxman if people do not take action to mitigate their potential inheritance tax liability. From a base of 17,000 estates paying inheritance tax upon the owner’s death in 2010-11, the current freeze on the nil rate band could bring in an additional 5,000 estates per year who are liable to an inheritance tax bill.

Ian Dyall, estate planning spokesperson at Towry, said: “There are many steps that can be taken to mitigate your inheritance tax bill. The most extreme but obvious choice is to downsize your home, and then ‘gift’ the surplus money to children or grandchildren. Alternatively, you could choose to spend some of it yourself – it is there to be enjoyed.”

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