Over the years, the value of London property has rocketed and that has big implications for Inheritance Tax planning. Why? Because it means more London estates are now exceeding the Inheritance Tax threshold and becoming subject to what can be hefty tax bills. Here at Narrative Wealth , we’re taking a closer look at what’s happening and what you can do about it.
How your house could cost your family
As house prices and investment values have risen in London, more ordinary families are being caught by Inheritance Tax (IHT). This is because the value of the house pushes up the value of the wider estate, which takes it over the Inheritance Tax threshold.
- The Inheritance Tax threshold, set by the UK Government, is currently £325,000. This is known as the nil rate band.
- The standard Inheritance Tax rate is 40%. It’s only charged on the part of your estate that’s above the threshold.
- With the family home often making up a large percentage of an estate, in 2017 the government introduced an additional nil-rate band to sit on top of the £325,000, known as the ‘residence nil-rate band’.
- The current residence nil-rate band is £175,000 per individual, although it is capped at the value of the home if this is lower.
Without planning, your family could face a substantial tax bill on part of what you leave behind. Minimising the tax burden is critical if you want to preserve your UK estate for your loved ones. So, what can you do?
Planning for Inheritance Tax in London
At Narrative Wealth, our experts can explain your options when to comes to IHT Planning in London. There are a number of strategies that could help, for example:
- Making use of gifting allowances and exemptions (while observing the seven-year rule on gifts).
- Using trusts to protect assets and manage tax exposure
- Using life insurance to help cover future IHT liabilities
- Applying business and agricultural reliefs to reduce taxable business assets
- Charitable giving as part of tax planning (charity legacies are IHT-exempt)
Challenges faced by property-rich households
Property-rich households could be sitting on six figures in bricks and mortar but lacking liquid cash. They may have bought modest homes in London many years ago, but rising property values in the capital mean that what was an affordable house is now triggering a significant tax bill with no money left behind to pay it. What’s more, many families believe IHT only affects the rich and don’t realise that they are exposed to IHT until it’s too late.
Next steps
If you are one of the Londoners who are property-rich and expecting your beneficiaries to be hit with a major tax bill, you need to make plans as early as possible. Based in London’s Wimbledon Village, Narrative Wealth’s professionals are highly knowledgeable about Inheritance Tax Planning and used to advising Londoners on their options. Book an appointment and one of our team will be happy to assist you.