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Rising property prices mean more will be on the hook for inheritance tax

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This year’s runaway house prices rises mean that more people could find themselves liable for inheritance tax when they are left a property, money or other assets after someone has died.

New figures from HMRC show that inheritance receipts in April to May 2021 were £966million – £340million higher than the same period last year, due in part to an increase in the value of many people’s homes.  

Financial advisers say significant increases in property values may mean that more estates will nudge past the threshold where inheritance tax is due, without them realising it.   

Tilney, the financial planning firm, has issued a stark warning about IHT – saying rising property prices, along with the buoyancy of the stock market, could draw more people into the ‘inheritance tax web’.

Taxing times: House prices rises have pushed homeowners over the inheritance tax threshold

Taxing times: House prices rises have pushed homeowners over the inheritance tax threshold

The latest official figures from HM Land Registry, which reported on house sales in April, showed that house prices had risen 8.9 per cent in the past year to an average of £250,772. 

If you give away your family home to your children, £500,000 is the maximum value that your estate can reach before you start being liable for inheritance tax – or up £1million if you are a surviving spouse or civil partner who already inherited the property from them.

If you don’t fall into this category, your limit is £325,000 – the standard nil-rate band.

This is Money analysis of Land Registry price paid data shows that more than 19,500 homes were bought for over £500,000 in the first quarter of this year.  

In the first quarter of 2010, the first full year after the inheritance tax threshold was last changed, the figure was less than half that, 7,800. 

The nil rate band is fixed, which means that for every £10,000 the value of the property grows over £325,000, the owners’ inheritance liability increases by £4,000. 

Compounding the situation is the fact that the threshold will not change for at least five years. 

House prices have increased by nearly 15 per cent in some UK areas - so those hoping to pass their home on after they die could be unwittingly setting family up for an inheritance tax trap

House prices have increased by nearly 15 per cent in some UK areas – so those hoping to pass their home on after they die could be unwittingly setting family up for an inheritance tax trap  

The Government recently took the decision to freeze the £325,000 nil-rate band until at least April 2026.

‘The freeze means that even before any fresh reforms to IHT are introduced, taxpayers could be stung if there is even a modest increase in their estates – which is quite possible given that property and share prices have been on the rise,’ said Ian Dyall, head of estate planning at Tilney.

The nil rate band has remained at £325,000 per person since April 2009, meaning that it will have remained unchanged for 17 years by the time the freeze ends.

However, the Government did bring in the £500,000 nil rate band for those passing on their main home to their children in 2017. 

Inheritance tax: who needs to pay? 

Inheritance tax is a tax on the estate (property, money and possessions) of someone who has died.

The standard rate is 40 per cent on anything above the threshold of £325,000.

There’s normally no inheritance tax to pay if either:

  • The value of your estate is below the £325,000 threshold 
  • You leave everything above the £325,000 threshold to your spouse, civil partner, a charity or a community amateur sports club

If you give away your family home to your children (including adopted, foster or stepchildren) or grandchildren, your threshold can increase to £500,000. This because of the ‘residence nil rate band’ which adds £175,000 to your allowance.

This relief tapers away if the deceased’s total estate is worth more than £2million.

If you’re married or in a civil partnership and you leave your estate to them, your threshold can be added to your partner’s when you die, or vice versa. This means the joint threshold can be as much as £1million. 

There are certain exemptions and reductions, for example if you leave money to charity or if you are passing on ownership of a business.

Tilney points out that, had the £325,000 allowance been adjusted for consumer price index inflation each year, it would now be approximately £414,000 per person.

If inflation continues to rise, the gap between the inheritance tax threshold and the value of people’s estates will grow even wider.  

Dyall added: ‘This is a reminder of the impact of inflation, which has started to rear its head again, evidenced by the latest consumer price index inflation figures out today which rose to 2.1 per cent in May, up from 1.5 per cent in April.’ 

Some are already seeking advice on inheritance tax and what their descendants might have to pay after they have died.  

According to The Openwork Partnership, one of the UK’s largest networks of financial advisers, there was a 38 per cent spike in demand for advice on inheritance tax planning in the past year, with more than one in ten clients wanting to discuss it.

Of these, 43 per cent said rising property prices was one of their reasons for seeking inheritance tax advice.

Antony Cousins, director of wealth management at SPF Private Clients, said his firm had also seen an increase in enquiries on the topic. 

‘Many more people could be hit by inheritance tax, thanks to rising property prices and a freezing of the nil-rate.

‘We have seen a significant increase in enquiries in this area over the past 12 to 24 months, particularly as Covid has made people think more about their mortality.’

He says that there are five main ways that those worried about inheritance tax can reduce their liability: spending significant amounts to reduce their overall estate; gifting money or assets to children and grandchildren; insuring against their inheritance tax liability, for example on a life assurance policy; setting up suitable trusts; and investing in an asset that qualifies for business property relief.

You can claim business property relief on property and buildings, unlisted shares and machinery that are associated with the running of a business, and if eligible the inheritance relief will be between 50 and 100 per cent. 

‘Everyone is different and generally it’s not just one of these solutions which suits best but a combination of these,’ says Cousins. 

‘Given that more people could find themselves hit by inheritance tax, it is important to take advice and to plan ahead.’ 

More older people are seeking advice about inheritance tax, according to experts

More older people are seeking advice about inheritance tax, according to experts

Those with more valuable estates have an extra complication to look out for, as the exemption for passing on your main home to your children tapers away when the deceased’s estate is worth more than £2million.   

Dyall explains: ‘There is an additional trap to consider, which means that some people will pay inheritance tax at an effective rate of 60 per cent on the growth. 

‘If the growth on their home pushes them above £2million, when added to their other assets, then for every £2 they exceed the £2million threshold, they will lose £1 of allowance. 

‘This results in an effective rate of tax of 60 per cent on the growth. So it is important to keep an eye on how the growth in the value of their home is affecting the bigger picture.’ 

How much does the Government make from inheritance tax?

How much does the Government make from inheritance tax? 
Tax year   Government inheritance tax receipts (£billion)
2009/10 £2.38billion
2010/11  £2.72billion 
2011/12  £2.90billion 
2012/13  £3.11billion 
2013/14  £3.40billion 
2014/15  £3.80billion 
2015/16  £4.65billion 
2016/17  £4.82billion 
2017/18  £5.21billion 
2018/19  £5.36billion 
2019/20  £5.12billion 
2020/21  £5.33billion 
Source: HMRC/NFU Mutual  

HMRC has revealed that it collected £5.33billion from inheritance tax in the 2020-21 financial year, up from £5.12billion the year before.

Since the tax-free allowance was raised to £325,000 in 2009, the amount of inheritance tax the Government pockets has more than doubled.  

Meanwhile, the average UK house price has increased by around 60 per cent since 2009, so a £325,000 house would now be worth around £520,000.

Though its income from the tax is on the increase, some experts predict that the Treasury could increase IHT even further as it seeks to recoup funds spent on emergency support related to the Coronavirus pandemic.

Julia Rosenbloom, tax partner at accountants Smith & Williamson, says: ‘Rumours have been swelling since the weekend about a plan by the Chancellor to launch a pensions tax raid in an Autumn Budget. 

‘If it is confirmed that a Budget will be held later this year, then it wouldn’t be unthinkable for lucrative reforms to be considered for other taxes, particularly IHT and capital gains tax, given the amount they raise for the Treasury on an annual basis.

‘If the Chancellor launches a sledgehammer to the tax system in an Autumn Budget and explicitly increases IHT charges then many more people will be affected – and some may need to go as far as selling family homes to pay their IHT bills.’

Cutting your IHT bill: Three tips from Tilney’s Ian Dyall

Pass on your pension

Pensions can play a big role when it comes to estate planning, as they aren’t included when your inheritance tax bill is calculated. 

If you can afford to leave your pension untouched while using other assets to fund your retirement, you could pass your pension on tax-efficiently while gradually reducing the size of your taxable estate.

If you die before you are 75, the person who inherits your pension can make withdrawals without paying any tax. If you die after age 75, the beneficiary will pay tax on withdrawals at their marginal income tax rate. However, access to these pension features is not available on many older pensions.

Make gifts in trusts

Trusts make it possible to give gifts to others while keeping control over the money. Usually when you set up a trust you can choose who receives the gift, when they receive it and what they can use it for. Many people make gifts in trust when the beneficiary is:

  • Too young or inexperienced to look after the money
  • In ill health or has certain disabilities 
  • Going through divorce or bankruptcy proceedings 

You can also use certain trusts to make a gift while still benefiting from the money. For example, you could give away an investment while keeping any income it pays or keep an investment while giving away its growth.

Use tax-efficient investments to benefit from business relief

Under business relief rules, you may be able to reduce the value of your inheritance tax bill by owning or investing in a business. You can claim business relief on:

  • A business or interest in a business (including a sole trade and partnership)
  • Land, buildings or machinery owned by a partner or controlling shareholder of a business and used by the business
  • Unquoted shares, such as those listed on the Alternative Investment Market (AIM) or Enterprise Investment Scheme companies.

You will need to own the assets for at least two years before you can claim business relief on them. 

Some assets become completely free from inheritance tax under these rules, whereas others only receive 50 per cent relief – and there are also several exceptions. In addition, investing in smaller companies can be higher risk. 

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Courts Service contradicts Garda declaration journalists were barred from court

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The Courts Service has openly contradicted An Garda Síochána’s declaration that journalists were barred from a court sitting in Waterford earlier this month on the orders of a district justice.

Former Fianna Fáil election candidate Kieran Hartley appeared before Judge Brian O’Shea at Dungarvan District Court on October 13th on a Section 6 public order charge for allegedly committing an offence against a family member of a local garda.

Journalists Eoghan Dalton and Christy Parker were barred for more than three hours from entering the court chamber by two gardaí, who said they had been told the judge had directed that no press be allowed in.

The decision to bar the press – the second time that this has happened to a court hearing where Judge O’Shea was sitting following an incident at a Dublin hearing in 2017 – has now been raised with Garda management.

During exchanges with the reporters, who questioned the decision, one garda said “no one is allowed in this morning”, and while they “honestly” did not “know any details of it” they had been “directed by the court to not allow anyone into it”.

The Garda Press Office later that day insisted “the presiding judge had directed that the court be cleared of persons not involved in the case” as a “voir dire” was in operation.

A voir dire normally occurs when a judge seeks to determine an issue in the course of a trial rather than in advance of one, and very rarely applies at District Court level. Journalists may witness proceedings but not report the details.

Direction

Questioned later, however, the press office said: “The court garda cleared the court as requested by the judge”, and that “it is understood that members of the media who so arrived after that point were inadvertently prevented from accessing the courtroom”.

The Courts Service on Friday said: “At no stage did Judge O’Shea or Courts Service officials issue a direction that the case should be held otherwise than in public”.

“The court sitting at Dungarvan District Court on Wednesday, October 13th, was a public hearing. It involved the hearing of certain arguments in a case, before the ‘substantive’ matter might be heard at another time,” the spokesman said.

“In the absence of an order the law requires that the proceedings take place in public: we are committed to that principle. The alleged actions of gardaí in not allowing access to some media is a matter for Garda management.

“These issues have been raised with Garda management,” said the Courts Service, which is understood to have checked its own records carefully ahead of making its public statement.

When the case came to court on September 22nd, solicitor Paddy Gordon, acting for defence solicitor Frank Buttimer, questioned the legitimacy of statements presented by An Garda Síochána. Mr Gordon claimed they were “not our statements and we want them examined forensically”.

Deferring the matter to the October 13th sitting of Dungarvan District Court, Judge O’Shea instructed that investigating Garda Tom Daly be present, along with his notebook and all original statements.

The judge also asked that Tramore District Superintendent Paul O’Driscoll attend the hearing, which would commence at 10am prior to the main court business.

Candidate

Mr Hartley unsuccessfully contested the 2014 European elections as Fianna Fáil’s Ireland South candidate. He resigned from the party acrimoniously in 2018 following his criticism of its handling of matters related to convicted paedophile Bill Kenneally, whose cousin Brendan was a former Fianna Fáil junior minister.

Judge O’Shea did not issue a written verdict on the present case against Mr Hartley, but it is understood the Garda testaments will stand as presented when it is heard.

Mr Buttimer said he was “not in a position to comment at present”.

Sinn Féin’s justice spokesman Martin Kenny said it was “highly unusual” and that he would be writing to Garda headquarters seeking an explanation. “Justice has to be seen to be done as well as being done, and I find it quite alarming that we’d be in this situation.”

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Darlington is cheapest for homes, London’s Kensington most expensive

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We all know about the North-South divide. We all know about the Prime Minister’s attempt at ‘levelling up’. We all know about the crumbling Red Wall.

But when it comes to property, the facts of the matter tell their own story. According to Churchill Home Insurance, Darlington in County Durham is the cheapest place to buy a property in the country, at just £58 per square foot.

Which is staggering when you compare it to the most expensive — Kensington in central London, where the average price per square foot stands at £1,721. 

Imposing: The Clock Tower in Darlington, County Durham - the cheapest place to buy a property in the country, at just £58 per square foot

Imposing: The Clock Tower in Darlington, County Durham – the cheapest place to buy a property in the country, at just £58 per square foot

Music giants Robbie Williams and Eric Clapton have homes in this exclusive royal borough home, as do entrepreneurs Sir Richard Branson and Sir James Dyson.

But here’s the twist: anyone looking to take advantage of Darlington’s prices might have to move fast because there are plans to turn this market town into the hottest property in the north.

Chancellor Rishi Sunak is opening up a smart new division of the Treasury there over the next five years, moving about a quarter of the department. 

That’s about 400 people, many of whom will be local recruits. ‘We’re giving talented people in the North-East the opportunity to work in the heart of Government, making decisions on important issues for our country,’ explains Sunak.

So what are the draws of these polar-opposite locations?

Kensington is one of the crown jewels of London neighbourhoods featuring not just top museums but also a host of chic cafes, boutique shops, and even Kensington Palace, where the Duke and Duchess of Cambridge live with their children.

There are three Zone 1 underground stations and several independent schools, and you’re a stroll away from the West End. 

Upmarket: A terrace in Kensington, London, where the average price per square foot stands at £1,721

Upmarket: A terrace in Kensington, London, where the average price per square foot stands at £1,721

Top restaurants include Daphne’s and Launceston Place — both favourites of the late Princess Diana — and the iconic Bibendum with two Michelin stars.

There’s no surprises when it comes to property values in this area; they’re stellar. The cheapest property in Kensington for sale on Rightmove in the middle of October was priced at £40,000 and that was just a space in a car park. 

The most expensive listing, by contrast, was a seven- bedroom semi, with an eye-watering asking price of £30 million.

Of just over 510 property sales in the past year, the average price was a slightly more modest £2,169,235, according to Zoopla, but that’s after prices took a 4 per cent knock as fewer people bought in London during the pandemic.

It’s a different story in Darlington, which has a modest average property price of £172,724, according to Zoopla. 

But things are changing; there have been more than 1,600 property sales in the past 12 months and prices have gently risen 4.5 per cent. The most expensive home on sale is a four-bedroom detached house with grounds, for £700,000.

However that’s still an exception, with many more at the other end of the scale, where there are several two-bedroom terrace houses for sale at £45,000.

If you’re moving in, bone up on railway history — the world’s first steam train service began here almost 200 years ago. 

Otherwise, look out for a twice-weekly street market, the revamped Hippodrome theatre and the odd tribute to comic Vic Reeves and businessman Duncan Bannatyne, both brought up in the town.

Darlington is brimming with well-preserved Victorian buildings while you can stroll in the beautiful South Park. If you’re after the best of local food, the two-Michelin starred Raby Hunt Restaurant is the place to go.

The town has the buzz of a place on the move — there are modernisations under way at both the railway station (2 ½ hours to London, 30 minutes to Newcastle) and the indoor market.

Meanwhile, Rishi Sunak’s Treasury initiative is already putting Darlington on the map. ‘I know of several people from London who have moved here thanks to working remotely,’ says estate agent Henry Carver of Carver Residential. 

On the market: North-South divide 

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Facebook admits high-profile users are treated differently

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Facebook’s oversight board said the social media company hadn’t been “fully forthcoming” about internal rules that allowed some high-profile users to be exempt from content restrictions and said it will make recommendations on how to change the system.

In the first of its quarterly transparency reports published Thursday, the board said that on some occasions, Facebook “failed to provide relevant information to the board,” and in other instances the information it did provide was incomplete.

For example, when Facebook referred the case involving former US president Donald Trump to the board, it didn’t mention its internal “cross-check system” that allowed for a different set of rules for high-profile users.

Facebook only mentioned cross-check, or XCheck, to the board when asked whether Trump’s page or account had been subject to ordinary content moderation processes.

The cross-check system was disclosed in recent reporting by the Wall Street Journal, based in part on documents from a whistle-blower.

The journal described how the cross-check system, originally intended to be a quality-control measure for a select few high-profile users and designed to avoid public relations backlash over famous people who mistakenly have their posts taken down, had ballooned to include millions of accounts.

The oversight board said it will undertake a review of the cross-check system and make suggestions on how to improve it.

As part of the process, Facebook has agreed to share with the board relevant documents about the cross-check system as reported in the Wall Street Journal. – Bloomberg

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