The number of families paying inheritance tax is at a 35-year high, with over 40,000 facing inheritance tax bills in the current tax year.
This year is looking to have the highest number of families paying inheritance tax since 1979-1980 when Margaret Thatcher set the tax rate at 75 per cent on inherited assets over £25,000. It is likely to rise to over 45,000 during 2016-2017.
One of the reasons that could explain the large increase in people paying IHT is the massive increase in house prices. Any property left in a will is part of the entire estate, and therefore if a house has increased in value dramatically, the likelihood of it bringing the value of the estate over the IHT limit increases.
For example, house prices in London have risen by 64 per cent in the last six years, meaning that the average house price in the capital is £531,000. Inheritance tax is due if a person’s estate is worth more than £325,000 when they die, so if they have property already worth more than this then IHT is due.
However, the number of people paying IHT is set to fall when the new regulations start in 2017. The Chancellor announced in 2015 that a main resident nil-rate band, which applies when a home is inherited, will be introduced between 2017 and 2020. There will be a slow introduction, rising from £100,000 to £175,000 per person. This will allow couple to jointly pass on a home worth up to £1 million tax free to their heirs from April 2020.
With the new IHT allowances introduced on top of the nil-rate band in 2017-2018, the number of estates that will be subject to IHT should fall by at least a third.
There are ways to plan ahead to make sure that your estate doesn’t have to pay out vast sums of inheritance tax, and you leave the amounts you want to leave to your loved ones. We have written a blog where you can find more information about reducing inheritance tax: Top Tips for Reducing Your Inheritance Tax Liability.
To read more on this subject, see our blog: A Life on Hold – Waiting For an Inheritance
It’s really important to make sure that your will is professionally written and that you have clearly stated what you wish to happen in the event of your death. Having a will that is clear, legal and properly written means less risk of it being contested and your wishes should be carried out.
If you need inheritance tax advice, or you would like to have your will written, please get in touch with the inheritance and welfare solicitors at Slater and Gordon. Call us 24/7 on freephone 0800 916 9056 or contact us online and we will call you.