Both property buyers and property sellers alike will be aware of the recent increase in property prices. According to an article in thisismoney.co.uk, house prices have risen 8.9% in the past year, with the average property price now standing at £250,772 (according to the Office for National Statistics’ report). 

 

If you are selling a property, this would probably be great news, whilst buyers are probably slightly less enthused as it is costing more to move than this time last year. 

 

There may be other areas that this booming property market has also affected: according to thisismoney.co.uk’s article, from April to May 2021, inheritance tax receipts totalled £966 million, an increase of £340 million from the same period last year. This increase is being attributed, at least partially, to the increase in property prices, but why? 

 

Despite the increase in property prices, the Nil Rate Band available to deceased’s estates remains set at £325,000, meaning that in some cases the Nil Rate Band is not sufficient to cover the estate due to an increased value in the deceased’s property. Our expert team of local Wills and Probate solicitors have discussed Inheritance Tax, Nil Rate Bands and property values in more detail, below. 

A Nil Rate Band is the amount that a person’s estate can be worth, before Inheritance Tax becomes payable. The current rate is set at £325,000, and this is to be frozen until 2026. This was originally set in 2009, so the amount will have remained frozen for 17 years before the Government considers any increase. 

 

However, in addition to a Nil Rate Band, a person may be entitled to an additional Residence Nil Rate Band, which is currently set at £175,000. This was introduced in 2017, effectively increasing some people’s Inheritance Tax-free amount to £500,000. The Nil Rate Band can be available for those leaving their residence to their direct descendants, which includes children, grandchildren or other lineal descendants, or a spouse of a lineal descendant. A lineal descendant includes a step-child, whether or not the deceased is still married to the step-child’s parent, an adopted child, a child fostered by the deceased at any time, or a child for who the deceased was appointed as a guardian or special guardian during the child’s minority. 

 

To find out whether you may qualify for the additional Residence Nil Rate Band, seek expert legal advice, here. 

 

There may also be other relief available on an estate, such as Agricultural Relief or Business Relief . Again, you should seek expert legal advice if you think that your estate could be subject to Inheritance Tax. 

When our expert local solicitors for Wills advise a client on making a new Will, if their circumstances require it, we will discuss Inheritance Tax with them. We would always need to consider an individual’s circumstances when advising about Inheritance Tax. 

 

However, in brief, the standard Inheritance Tax rate is 40%, which is charged on the value of your estate that is over your tax-free threshold. For example, if your estate is worth £500,000, and you have a tax-free threshold of £325,000, Inheritance Tax would be charged at 40% on £175,000. This is calculated as: £500,000 minus £325,000 equals £175,000. Inheritance Tax charged at 40% on this amount would equate to £70,000. 

 

Other factors could affect the amount of Inheritance Tax payable, including gifts made during the deceased’s lifetime, whether their Will leaves any money to charity (usually if at least 10% of an estate is left to charity, a reduced Inheritance Tax rate of 36% is payable) and whether the deceased made any gifts with a reservation of benefit. 

 

As is clear from the above, Inheritance Tax is not a straight-forward one-size-fits-all issue, and you should always seek legal advice to find out whether Inheritance Tax is payable on your loved one’s estate before completing any of the HMRC tax forms. 

As discussed by our expert local solicitors above, property prices have increased, on average, 8.9% over the past year. This means that with a frozen Inheritance Tax Nil Rate Band, for every £10,000 that the value of a person estate increases over their tax-free threshold, they could pay £4,000 in Inheritance Tax. 

 

For some people, it would almost be beneficial for their house to be lower in value, so that their estate does not become taxable after their death. 

At MG Legal, our expert team of local Wills and Probate Solicitors are here to help. To discuss a Will or Inheritance Tax, contact our team at your local office to arrange an appointment. 

 

Our team provide confirmation of the fees payable at the very start of your matter, so that you know where you stand and what you will be charged for. Find out more about our fees, here. 

You can contact our expert team of local solicitors online, here, or contact your local office directly. 

 

Our team are available during office hours, Monday to Friday, 9am to 5pm. For assistance outside of office hours, email enquiries@mglegal.co.uk and a member of the team will get back to you as soon as possible.