New research has found that millions more homeowners will be forced to pay inheritance tax (“IHT”) over the coming few years as a result of rising property prices across the country.
Venture capital firm Albion Ventures revealed that the tax is now a ‘mass market tax’ due to the ongoing uptick in house prices. The average home in London is set to exceed the current IHT threshold of £325,000 in 2015, the research found, with prices expected to rise to £331,000.
An estate that is worth less than the £325,000 threshold is classed as being in the ‘nil rate band,’ and does not trigger any IHT following a death. Any estate worth more than that amount incurs a 40 per cent IHT charge.
Married couples or those in a civil partnership are each entitled to a £325,000 allowance, with their allowance transferring to their spouse in the event of their death. The surviving spouse is then entitled to an allowance of £650,000 on their death.
If property prices continue on their current trajectory, an average home in the South East will trigger an IHT bill by 2019, the research said, while the average property across the UK looks set to exceed the threshold by 2025.
Since 1986, the IHT threshold has seen an annual rise of 5.4 per cent and, had it continued to rise in line with its historic average, it would now sit at £423,212. However, the threshold has been fixed since the 2010/11 tax year and is set to remain at its current level until at least April 2019.
Managing partner at Albion Ventures, Patrick Reeve, said that while rising house prices have been welcome news for many, the downside is that many more homeowners will be liable for IHT.
He added: “It’s no longer the very wealthy who are affected by this tax and it’s becoming increasingly important, particularly for homeowners in London and the South East, to take action to reduce their liability.”