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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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Zappone turns down invitation to appear before committee to discuss envoy role

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Former minister Katherine Zappone has turned down an invitation to appear before an Oireachtas committee to explain the circumstances surrounding her now-scrapped appointment as a special envoy.

The chair of the Oireachtas Committee on Foreign Affairs Charlie Flanagan confirmed on Monday that Ms Zappone had declined an invitation to attend to discuss the matter.

The committee, which met last Wednesday in private session, agreed to write to the former minister and invite her to appear before it.

It is understood the decision was taken at a private meeting after it was proposed by Sinn Féin spokesman on foreign affairs John Brady and his Social Democrats counterpart Gary Gannon.

The committee is also to invite Martin Fraser, the secretary general of the Department of the Taoiseach and the State’s highest-ranking civil servant, to address the issue of precisely when Ms Zappone’s name was communicated to the Department of the Taoiseach.

Controversy erupted over an attempt by Minister of Foreign Affairs Simon Coveney to appoint Ms Zappone as a special envoy for freedom of expression and LGBTQ+ rights.

Mr Coveney – who is attending UN meetings this week in New York – last week faced down a motion of no confidence as a result of his handling of the matter.

Earlier this month, Mr Coveney told the Oireachtas Committee Ms Zappone was mistaken in her belief she had been offered the job last March.

Mr Coveney also rejected claims that Ms Zappone lobbied for the position or that he breached Freedom of Information legislation by deleting texts between himself and Tánaiste Leo Varadkar.

However, Mr Coveney apologised for “sloppiness”, and for making mistakes in the past few weeks.

Records released by the Department of Foreign Affairs show Ms Zappone texted Mr Coveney to thank him on March 4th “so, so much for offering me this incredible opportunity”.

In mid-July she sent another message of thanks but Mr Coveney has insisted nothing had been formally agreed until it came to Cabinet on July 27th.

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Lori Loughlin and fashion designer husband drop $13M on Palm Desert vacation home

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Former Full House actress, Lori Loughlin, and her husband, Mossimo Giannulli, have dropped $13million on a gated Palm Desert, California, oasis, following their release from prison for their involvement in the college-admissions scandal.  

Loughlin, who was released from prison in December, with her husband following in April, appear to be celebrating their newfound freedom with the purchase of their vacation getaway in the La Quinta community.

The five-bedroom, 5.5 bathroom home, situated in the guard-gated exclusive Madison Club, comes lavished with several amenities, including a wine cellar, movie theater, two pools, two spas, a wet bar and an outdoor projector-theater.  

Former Full House actress, Lori Loughlin, and her husband, Mossimo Giannulli, have dropped $13million on a gated Palm Desert, California, oasis, following their release from prison for their involvement in the college-admissions scandal.

Former Full House actress, Lori Loughlin, and her husband, Mossimo Giannulli, have dropped $13million on a gated Palm Desert, California, oasis, following their release from prison for their involvement in the college-admissions scandal.

The open dining and living room area is perfect for watching L.A sunsets

The open dining and living room area is perfect for watching L.A sunsets 

The home comes equipped with several outdoor fireplaces, perfect for entertaining guests on chilly evenings

The home comes equipped with several outdoor fireplaces, perfect for entertaining guests on chilly evenings 

Opulent swimming pools encompass the outdoor area, in addition to an outdoor projector for watching films

Opulent swimming pools encompass the outdoor area, in addition to an outdoor projector for watching films 

The home comes lavished with several amenities, including a wine cellar, movie theater, two pools, outdoor fireplaces, two spas, a wet bar and an outdoor projector-theater

The home comes lavished with several amenities, including a wine cellar, movie theater, two pools, outdoor fireplaces, two spas, a wet bar and an outdoor projector-theater 

Former 'Full House' actress, Lori Loughlin, (right) and her husband, Mossimo Giannulli, (left) have dropped $13 million on a gated Palm Desert, California, oasis

Former ‘Full House’ actress, Lori Loughlin, (right) and her husband, Mossimo Giannulli, (left) have dropped $13 million on a gated Palm Desert, California, oasis

Built in 2019, the home was formally owned by Assurance co-founder Michael Rowell and his wife, Alexis, who purchased it for only $9.5 million. 

A few of their neighbors include Kris Jenner, Kourtney Kardashian, Nike’s Phil Knight, Cindy Crawford and Scooter Braun. 

The purchase comes a year after Loughlin and Giannulli bought a $9.5 million modern farmhouse in the Hidden Hills area of Los Angeles.      

A federal judge in Boston recently granted Loughlin ‘expedited’ permission to travel to Canada to possibly rekindle her career. The request was necessary as she remains on probation.

The five-bedroom, 5.5 bathroom home is situated in the guard-gated exclusive Madison Club in the La Quinta community

The five-bedroom, 5.5 bathroom home is situated in the guard-gated exclusive Madison Club in the La Quinta community

Built in 2019, the home was formally owned by Assurance co-founder Michael Rowell and his wife, Alexis, who purchased it for only $9.5 million

Built in 2019, the home was formally owned by Assurance co-founder Michael Rowell and his wife, Alexis, who purchased it for only $9.5 million

An large dining area opens out onto the terrace, as an intricate chandelier hangs from the ceiling

An large dining area opens out onto the terrace, as an intricate chandelier hangs from the ceiling

Also featured in the amenities is a chic, oversized wine cellar

Also featured in the amenities is a chic, oversized wine cellar 

Loughlin was unable to travel due to her prison sentence and ensuing community service commitments stemming from her involvement in the ‘Operation Varsity Blues’ scheme, which involved wealthy parents paying large sums of money to get their kids into elite universities.    

‘Ms. Loughlin anticipates she will be traveling for about one week’ and is ‘being offered a filming production project’ if granted permission, her initial request sent by a probation official stated.   

It emerged in 2019 that Lori and Giannulli bribed their daughters Olivia and Isabella’s way into University Of Southern California.

Lori and her fashion designer husband paid $500,000 to falsely pass the girls off as potential college rowers on USC’s rowing team.

Although they initially claimed to be innocent, Mossimo pled guilty last May to conspiracy to commit wire and mail fraud and honest services and mail fraud, while Lori pled guilty to conspiracy to commit wire and mail fraud.  

Giannulli was sentenced to five months, while Loughlin served two months behind bars.

It emerged in 2019 that Lori and Giannulli bribed their daughters Olivia and Isabella's way into University Of Southern California

It emerged in 2019 that Lori and Giannulli bribed their daughters Olivia and Isabella’s way into University Of Southern California

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Tenor fails to rent home as work in Covid-hit sector deemed precarious

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An Irish tenor, who has performed for presidents and emperors and been shortlisted for a Grammy award, is struggling to rent a home in Dublin because of a perception that working in the Covid-19-hit entertainment industry makes him a risk.

Paul Byrom said he was “knocked for six” last week after a potential landlord refused to even meet him on the grounds that the pandemic had made his profession singularly unsuitable for the rental market.

Byrom has earned his living as a musician for more than 20 years and has performed for Emperor Akihito of Japan, former Irish presidents Mary McAleese and Mary Robinson and former US president Barack Obama.

He was one of the original soloists in the Celtic Thunder show that toured the world and had number one albums on the World Billboard Chart. A solo album, This is the Moment, debuted at number one on the same chart and was shortlisted for a Grammy nomination.

Byrom has continued to work online during the pandemic and is looking forward to restarting his live career soon. “I am no Bono, but I am not starting out in the game,” he said.

However, none of his achievements appear to have been good enough for one Dublin landlord. Byrom said he and his girlfriend were keen to move to a bigger home and found a two-bedroom house in south county Dublin advertised at a rent of €2,000 a month.

‘Exemplary tenant’

It was being let by the estate agent which manages the property the couple currently live in and he was assured that, as an “exemplary tenant” for more than three years, his application would most likely be considered favourably.

“The estate agents said that while it was looking after the letting, it wouldn’t be the management company and the guy who owned it would be the point of contact,” Byrom said. “I was told that the landlord would want to meet me and I had no problem with any of that – I thought that made sense.”

He and his girlfriend assembled all the paperwork including her payslips and details of his earnings from his accountant. “I had moved in in my head but then I got a phone call saying the application had been rejected,” he said.

His mother joked that he had been turned down “because the landlord didn’t want you practising your Ave Maria’s at 10 in the morning.”

But that was not the reason. It emerged that the “landlord thought that because Covid had hit my industry hard he would be too nervous to take me on. He simply didn’t want anyone from the entertainment industry,” Byrom said.

Mortgage

He said struggling to rent or get a mortgage were not the only issues entertainers encounter.

“Try and look for car insurance as a singer and the companies don’t want to know. So I can’t drive a car or rent a home or even take advantage of the bike to work tax scheme because I am self employed.

“And this is a country that claims to be the land of the bards and the poets. The amount of roadblocks put in an entertainer’s way are just crazy, but then they will say get out there and sing Danny Boy and represent the country. You’d have to wonder if Ireland wants artists to be here at all.”


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