Sunday, April 5, 2020

Soaring Home Values Boost IHT Tax Take

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Astonishing new official figures show that where your home is when you die has a huge bearing on how much inheritance tax is paid on your estate.

The major factor is house prices and anyone with a home in London of the South-East pays more to the government.

That’s because house prices inflate the value of estates and push more families above the inheritance tax thresholds.

Expats who believe they are exempt inheritance tax may also have a tax shock as if they have property in the UK will have tax charged to their estate – and if that property is in the wealthy south of England, the bill could amount to a tidy unexpected sum.

In 2017-18, couples have a £650,000 nil rate band and an extra nil rate band of £200,000 if they leave their main home to their children or grandchildren.

£5 billion collected

The threshold is cut by half for a single person’s estate.

HM Revenue & Customs collected just over a record £5 billion inheritance tax in 2016-17.

The latest regional breakdown available for the 2014-15 tax year showed Londoners and estates in the South East paid £2.064 billion in tax.

House prices dragged 10,000 estates into the 40% inheritance tax bracket.

The rest of the country, including Scotland, Wales and Northern Ireland, totalled13,300 estates paying death tax worth £2.151 billion.

Postcode lottery for IHT

Inheritance tax a is a postcode lottery.

HMRC says estates in the Surrey towns of Reigate and Banstead, where 150,000 people live, has 160 estates paying the tax, but Glasgow, with a population of 600,000 has only 80 estates caught in the IHT net.

The picture is similar for many other areas – the London borough of Barnet, where 380,000 people live has 360 estates a year paying the tax but Northern Ireland, with a 1.8 million population has 300 estates attracting inheritance tax.

The good news is the residence nil rate band is due to rise to £175,000 for an individual or £350,000 for a couple by 2020-21, which should take many estates out of the reach of inheritance tax.

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