While you may be pleased that the value of your home is increasing, it may also mean that you need to consider the effect that the increased value may have on Inheritance Tax.
The number of people being caught by Inheritance Tax has increased by over 35% within the last year, mainly due to the rapidly increase in house prices, with HM Revenue and Customs collecting £2.7 billion in tax charges from April to August 2021. This is an increase of £0.7 billion in comparison to the same period in 2020.
In the March 2021 Budget, Chancellor Rishi Sunak announced that both the Inheritance Tax nil rate band of £325,000, which has not changed since 2009, and the main residence nil rate band of £175,000, when the main residence is passed to children or grandchildren, would be frozen for the next five years up to 5th April 2026.
Inheritance, after taking into consideration available nil rate bands, is taxed at 40%, and will significantly deplete the amount descendants receive upon the passing of loved ones.
House prices have increased by over 10% in 2021, triggered mostly by the Stamp Duty Tax window introduced during the Covid-19 lockdown, along with fund and share portfolios also increasing in 2021, so it is becoming more important than ever to plan for any potential Inheritance Tax that may be due.
There are several steps that can be taken to minimise this liability, and to ensure that assets may be passed on in a tax efficient manner with careful planning, but it is key to plan as early as possible.
If you have any queries or would like any advice on Inheritance Tax and how best to plan, please contact your usual Whitings contact or local office.