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Property investors will likely pay more inheritance tax due to soaring house prices and frozen tax thresholds.
Inheritance tax - also called IHT - mainly nets estates in London where property wealth is almost double that of the average UK estate, according to new data.
HM Revenue & Customs data reveals 4,190 estates paid IHT in the capital in 2019-20.
The average London estate was worth. £1,439,141, including £464,396 of cash and securities, and £820,163 of property.
The average UK estate excluding London was worth £1,160,478, with £448,136 of cash and securities, while the left property was valued at £440,494.
The financial advice firm Just Group released the data.
Communications director Stephen Lowe pointed out that estate sizes were impacted by spiralling house prices from the pandemic until recent weeks, with homeowners aged 55 and over benefiting from £1 billion growth every day between March 2020 and June 2022.
“This is likely to have tipped many more estates over the IHT threshold, perhaps without the homeowners even realising. It is another reminder of why it is so important that people regularly assess the value of their estate, including an up-to-date valuation of their property,” he said.
The table shows average estate values across the UK in the 2019-2020 tax year. Estates in southern regions of the country include more property as house prices are higher.
Region | Number of estates | Average estate value | Average value of securities and cash | % of estate left as securities and cash | Average property value | % of estate left as property |
London | 4190 | £1,439,141 | £464,396 | 39% | £820,163 | 50% |
South East | 4990 | £1,244,489 | £430,233 | 47% | £604,478 | 39% |
East of England | 2540 | £1,188,976 | £414,815 | 48% | £524,272 | 36% |
South West | 2440 | £1,213,115 | £456,019 | 50% | £474,372 | 32% |
West Midlands | 1310 | £1,045,802 | £352,212 | 53% | £398,095 | 31% |
North West | 1540 | £1,077,922 | £454,074 | 60% | £336,800 | 25% |
North East | 371 | £929,919 | £357,143 | 60% | £307,420 | 25% |
Yorkshire & Humber | 982 | £1,262,729 | £542,294 | 58% | £388,747 | 25% |
East Midlands | 1070 | £1,252,366 | £516,985 | 57% | £383,803 | 24% |
Wales | 699 | £1,054,363 | £443,124 | 60% | £302,655 | 23% |
Scotland | 1240 | £1,056,432 | £498,198 | 61% | £304,629 | 22% |
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UK average | 21372 | £1,160,478 | £448,136 | 54% | £440,494 | 30% |
Source: Just Group
Complicated IHT rules set different tax thresholds depending on the estate.
Every estate has a £3235,000 nil-rate band but can qualify for an extra £175,000 nil-rate band if passing the family home to children. This stakes the IHT-free total to £500,000.
Couples can take their combined allowance up to £1 million if the surviving spouse inherits from their partner.
Gifting assets while you are alive is not a problem, but you should know the rules governing giving away your money. Some gifts are tax-free, like spending up to £5,000 for a child’s wedding. Other gifts are ‘potentially exempt transfers’ or PETs. These rules have a sliding tax scale should you die within seven years of making the gift.
You can reduce the amount of IHT you might pay without breaking the law. The best way to plan for death duties is to speak to a tax advisor or accountant familiar with IHT.
HM Revenue & Customs publishes a guide to IHT online. The guide explains how IHT works and the latest thresholds and tax rates.
You can gift up to £3,000 each tax year without paying IHT. The money can go to one person or be split among several people. Any unused exemption is carried forward to the following year’s allowance, giving a maximum of £6,000 for gifting.