Since last July the UK property market has been on the rise largely fuelled by the change in lifestyle choices as a result of the pandemic e.g. being able to work from home and undoubtedly the housing market has been further fuelled by the government cutting stamp duty. As a result Land Registry advised the average price for a property in the UK rose by 10.2% in the year to March 2021.
Whilst the buoyant housing market is good news especially for those looking to sell a property, that has inadvertently increased the value of estates for inheritance purposes. Individuals who have an estate above the current band of £325,000, subject to exemptions and any unused nil rate band transferred from any predeceased spouse or civil partner, needs to consider inheritance tax.
In 2017 there was an extension to relief for individuals who have an estate including a main residence to include an additional nil rate residence band when that residence is passed on death to a direct descendent. The additional nil rate band is currently £175,000 and it was announced in this year’s Budget that this will be frozen until at least April 2026. Again any unused nil rate residence band can be transferred to a surviving spouse or civil partner. Therefore the estate of an individual who previously inherited their entire spouse’s estate could potentially qualify for the first £1 million of their estate free of inheritance tax. This is of course assuming the residential property is worth more than £350,000 in the estate and is bequeathed on death to a direct descendant being a child, grandchild or other lineal descendant or the husband, wife or civil partner of a lineal descendent including their widow, widower or surviving civil partner.
Of course without any other exemptions, taking the above example, any valuation of the estate over £1 million will be subject to inheritance tax at 40%.
For many, inheritance tax has not been a consideration, but with rising house prices and indeed the average house price in the UK now worth more than £330,000, increasingly the value of one’s home should not be disregarded when considering the potential exposure to inheritance tax.