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Inheritance and Property Tax

Contributed by Sussex SEO
09 July, 2019

In a month where Labour proposed their new progressive property tax to replace council tax, we take a look at what its impacts might be for current owners and future estate beneficiaries.

The main proposal from the opposition party is focusing on changing who is charged tax in order to reduce the use of homes being bought simply as financial assets. This change although described as 'radical' by some has been agreed by many as viable way of freeing up homes that are highly soughtafter. This has been based around research that 81% of house price rises in the last 50 years have been due to rising land prices. In a move that would be beneficial to councils to they would have the ability to seize vacant of derelict land and sell it auction. Unsurprisingly there are also many counter claims of its effectiveness by members of the ruling party.

While this plan from Labour is only a proposal and is many moons away from being put into practice. Let's cover the current situation on property and inheritance tax.

Coming towards the end of your life is inevitable, deciding on how that impacts those around you is very much within your hands. Perhaps the most common aspect of inheritance tax for the majority of the population comes from selling the property of the decease, but do you know how to ensure you only pay the right amount and don't mistakenly pay more than you should.

Inheritance tax is usually applied to an estate that is to be transferred to one person after the death of another. There are exceptions as to when the amount is taxable. These could be if the property reaches the threshold and if this, in combination with money, possessions and jewellery etc., equal more than GBP325,000. Any amount above this figure is taxable at the standard rate of 40%. This is not usually the case if the whole estate is left to a civil partner, charity, spouse or amateur sports club. The threshold can also be increased up to GBP475,000 if the property is being given away to children or grandchildren. In this instance one person may be able to transfer any unused threshold of a partner, if legally together, enabling the tax-free threshold to rise up to GBP950,000.

Wealthy areas, such as Knightsbridge and Mayfair the property is owned by those in the 'grey-pound', who have been lucky enough to see prices for houses they bought many decades ago skyrocket to seemingly unfathomable highs. Not only leaving those wishing to live in the most lavish parts of London looking at houses for rent in Mayfair, Chelsea and Knightsbridge. It is in these areas that owners should look at ways of passing on their property to the next generation in ways that assure the owner of paying the minimum amount of tax. A bit of due diligence can save hundreds of thousands of pounds. Saving on property of this scale can also be seen in agricultural property a report from HMRC showed how 261 families shared GBP208m in tax relief in 2015-16.

There is also the option of giving a gift, or 'gifting' to a person ahead of their death, which will help acquire tax relief or even exemptions. The government does state that this is dependent on when the gift was given. A spokesman for the TPA described how "There are different ways to limit your inheritance tax liability. A very, very common one is what's called the seven year rule. So that means if you give away quite a bit of your estate to, well technically it could be anyone but it could be children, grandchildren for instance."

"If you live longer than that seven year period then your estate will not be subject to inheritance tax. If you live for four years then you would be subject to inheritance tax, but at a lower rate than 40 percent. So it's tapered as each of those years go by."

It is always advisable to contact the Inheritance tax and probate helpline when this situation arises.


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