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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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VGP acquires French logistics development

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VGP NV and VALGO signed an agreement to purchase 32 hectares of land that housed the former Petroplus refining units in Petit-Couronne, near Rouen. This brownfield rehabilitation project is fully in line with VGP’s core expertise and strategy. Thanks to the six years ownership of the site by VALGO and its expertise in asbestos removal, soil and water table decontamination, in-situ waste treatment and development, this area has now become a suitable site for the development of new industries and business activities.

 

On the banks of the river Seine and close to the A13 highway, the 32-hectare area of land offers its future users a highly strategic location. Following the extensive depollution work carried out by VALGO, the site is now ready for redevelopment. VGP expanded into France only a few months ago and is delighted to start its French business activities in the dynamic Rouen Normandy metropolis area, via this major project. In total, around 150,000m² of land are set to be redeveloped to accommodate industrial and logistics projects, with work due to begin in 2023.

 

Jan Van Geet, CEO VGP, said: “VGP is delighted to begin its business activities in France on a site as exceptional as this one, with strong economic and environmental ambitions that are shared by both our partner, VALGO, and the local authorities. As the rehabilitation of brownfield sites is at the heart of our business, this project is a great opportunity for us to deploy our industrial and logistical know-how. The uncertain geopolitical situation and the rise in transport prices mean that companies are increasingly looking for local support to start their business. In this context, we strongly believe in the relevance of our integrated model with a long-term vision. We are now eager to get to work and bring all the expertise of the Group to the project.”

 

Francois Bouche, CEO VALGO, commented: “We are delighted that this huge piece of land has been sold to a major investor with experience in redeveloping brownfields in Europe. However, I would first like to celebrate the work of the men and women who worked so hard to make this colossal project a success. It took more than 1 million hours and over €60m in investment by VALGO to turn the page on over 80 years of refining on this site, which already employs 600 people.”

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Selling your home? Here’s how to make sure it has kerb appeal by sprucing up outside space

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As anyone who has indulged in the brutal ‘swipe left’ culture of internet dating will testify, you don’t often get a second chance to make a first impression. And the same is true when trying to sell your property.

That’s why what lies at the front of your house — be it lawn, gravel or flagstones — can play a major role in making a sale.

Indeed, having a pleasing ‘shop front’ to snag potential buyers scrolling through listings or even walking past outside can offer leverage to boost the asking price, says Colby Short, CEO of estate agent comparison site getagent.co.uk.

Dress to impress: Colourful flower beds transform the look of a cottage in East Lothian, Scotland

Dress to impress: Colourful flower beds transform the look of a cottage in East Lothian, Scotland

‘Homes that offer a front garden carry a 4 per cent property price premium versus those without, and that equates to more than £11,000 in the current market,’ he says.

So what changes can you make to the patch in front of your house to help improve the saleability of the property?

Some alterations are simple, entry-level innovations. For example, even the smallest swatch of grass should be mown and rubbish-free. 

In fact, bins and recycling boxes are often the first thing you see in a front garden, as well as the detritus left by squirrels who have curated bits of dinner from your bags of rubbish. But it’s easy to hide bins away in a box unit.

‘If you’re trying to hide ugly bins, how about building a bin store with a planter on the top, then you can have some gorgeous outdoor succulents and flowering alpines?’ says QVC UK’s gardening expert Michael Perry. 

You can also buy wooden bin stores from outdoor furniture suppliers such as Wayfair (from £125.99).

Meanwhile, hanging baskets outside your front door help to break up a harsh brick wall, says Sean Lade, of Easy Garden Irrigation.

‘Hanging baskets are an excellent choice for adding colour and scent to your front garden and soften the front of your house. They should be installed at eye level —about 5 ft off the ground.’

Hanging baskets add colour and scent to a front garden and soften the front of a house

Hanging baskets add colour and scent to a front garden and soften the front of a house

And think about replacing tired fencing or dilapidated brick walls with natural borders, such as Boxwood hedging, which will add visual interest and is also easy to prune throughout the year.

‘If you prefer a cottage garden appearance, then why not train climbing plants to create natural archways around your front door, porch or gate?’ says Deborah Cobb, product manager at builders’ merchants MKM.

‘Raised flower beds are also a clever way to add some natural foliage. If you fill them with evergreen shrubs, then they are an easy-to-look-after and low-maintenance option that will look good all year round.’

In terms of what plants to go for, Nicola Bird, founder of seed subscription service The Floral Project, suggests some annual flowers are perfect for planting at the front of your house if you’re looking to sell. 

‘They include varieties such as cosmos, phlox, zinnias and sweet peas — not only to bring a bright splash of colour to your front garden, but also serve as a great conversation starter with your potential buyers.’

Even if you don’t have a patch of grass in front of your home, there are other fundamentals which will help with the sale, says Jonathan Rolande, professional property buyer at housebuyfast.co.uk.

This includes jet-washing your path. And just before a visit from potential buyers, remove any vehicles, where possible, to help to create an impression of space.

‘Clean the windows, frames and front doors — and clean the house number,’ he says. ‘If the garden is mostly given over to parking, soften the look with pots and planters filled with bright flowers and attractive shrubs.’

 You may think your garden gnomes are cute, but to a prospective buyer, they can be just plain creepy

He adds that if you don’t have a lawn, terracotta planters on the front sills look great with fragrant plants such as lavender and rosemary appealing to the sense of smell, too.

If your front garden is really small, use decorative gravel such as pea shingle or slate chippings, suggests Thomas Goodman, property expert at homeowner and tradesman connection website myjobquote.co.uk.

‘This will give you an attractive, low-maintenance base for topping with a few nice plant pots.

‘Fix anything that’s broken, including gates, fences and walls. These detract from any nice planting and give the impression of a home that’s not properly maintained and is going to need work.’

Colby Short says some items in your garden should be permanently jettisoned to improve the chances of a sale.

‘You may think your garden gnomes are cute, but to a prospective buyer, they can be just plain creepy. The same goes for any large statues or display items, particularly if they are of a political, religious or risque nature.

‘When it comes to potential buyers, you want to present a blank canvas. But that doesn’t mean this canvas can’t look good and add appeal in its own right.’

On the market… with kerb appeal 

Buckinghamshire: This four bedroom semi-detached cottage is on the edge of Denham Village. The bedrooms are spacious overlooking front and rear gardens. Struttandparker.com, 01753 481 781, £800,000

Buckinghamshire: This four bedroom semi-detached cottage is on the edge of Denham Village. The bedrooms are spacious overlooking front and rear gardens. Struttandparker.com, 01753 481 781, £800,000

Suffolk: There are four bedrooms in this detached house in Old Newton. The property dates from the 16th century and has a thatched roof and mature gardens. Fineandcountry.com, 01379 646 020. £1.2m

Suffolk: There are four bedrooms in this detached house in Old Newton. The property dates from the 16th century and has a thatched roof and mature gardens. Fineandcountry.com, 01379 646 020. £1.2m

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Elephant Park expands its retail offer (GB)

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Lendlease has announced the openings of two new spaces at Elephant Park: all-day kitchen and bar RAREBIT; and community garden store The Nunhead Gardener.

 

RAREBIT – the all-day kitchen and evening dining, bar, and grocery store – has opened its first brick-and-mortar location on Elephant Park’s casual dining hub, Sayer Street. The brand-new concept has a menu focusing on British favorites including the Welsh ‘rarebit’, and its grocery stocks a range of independent wines, craft beers, and coffee from East London coffee shop, Climpson & Sons. This selection is complemented by cheeses from Neal’s Yard Dairy, charcuterie from London Smoke & Cure, and produce from Natoora.

 

The Nunhead Gardener is the latest brand to move from one of Lendlease’s meanwhile units into a permanent space at Elephant Park, following the likes of Dima Beautiful, Beza Ethiopian Vegan, and bar and bottle shop The Tap In. The 900ft² unit on Sayer Street stocks a selection of indoor and outdoor plants, as well as specialty gardening tools, seeds, and seasonal scented candles.

 

Guy Thomas, Head of Place Assets at Lendlease, commented: “Both of these openings speak to our core values at Elephant Park, with a commitment to providing our local community with uses that are independent, sustainability-oriented, and unique. The arrival of RAREBIT adds a new cuisine to casual dining hub Sayer Street, and The Nunhead Gardener’s revamped permanent space has created a plant haven that we know local people will love.”

 

Mark Angell and Will Nias, Co-Founders of RAREBIT, said: “RAREBIT is about bringing a modern, fresh concept to people who want top-quality food and drink. Whether that be for grocery shopping or sit-down dining, we are so excited to be welcoming customers through our doors at Elephant Park. It is such a buzzing area, and we are proud to introduce RAREBIT to this diverse and vibrant environment.”

 

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