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Beware of rising house prices increasing Inheritance Tax liability

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

The latest figures from HM Revenue & Customs (HMRC) show that the average figure stood at nearly £210,000.

IHT is a charge on the value of the estate of someone who has died and includes 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.

The £325,000 threshold might be even higher if you gift your home to a direct descendant such as your children or grandchildren, where a further residence nil-rate allowance of £175,000 takes the figures to £500,000 before tax, or up to £1 million if you are a surviving spouse or civil partner.

As property values increase, people who are leaving a home in an estate could find they are moving into the IHT bracket unexpectedly.

The new figures from HMRC, which are taken from the 2018/2019 tax year, show that the average IHT bill rose by six per cent compared to the previous year.

The figures indicate that the average IHT bill for that year was £209,502, a significant rise from the previous year, which averaged out at £197,521.

This year’s runaway house price rises mean that more people could find themselves liable for IHT when they are leaving a property, money or other assets to beneficiaries, despite increases to the threshold through the residence nil-rate allowance.

Government data shows that revenue from IHT receipts in April to May 2021 were £966 million, £340 million higher than the same period last year, partly due to the sharp increase in property prices.

David Webb, Head of Wills, Probate and Older Client Services at Mander Hadley, who specialises in Wills and estate planning, said: “Rising house prices mean it is more important than ever to consider your estate’s tax position.

“Preparing a Will can be a complex process, and being aware of the IHT rules is pivotal, as well as exploring your options to ensure your estate is set up in the most tax-efficient manner.”

For help and advice on writing a tax-efficient Will, please contact us.