Good old former chancellor George Osborne claimed to be on the side of the homeowner battling rising house prices last year when he announced a new inheritance tax allowance for a main residence that will eventually allow an estate worth up to £1m to be tax-free. But the property market has already seen plenty of extra charges come in by stealth this year. We have seen the introduction of the extra Stamp Duty surcharge and landlords are also preparing for the scaling back of mortgage interest relief. But are the Inheritance Tax changes a surprise around the corner for home owners?
Research by Saga this week found properties sold in England and Wales above the £325,000 IHT ‘nil-rate band’ is heading to a record high in 2016. Earlier this year, Saga found that 24% of properties sold in 2015 exceeded £325,000, an increase from 13% in 2009 when the nil-rate band was first set. In fresh analysis of property sales data from the Land Registry for the first seven months of 2016, that figure has edged up to 26%, meaning more than one in four properties were sold over the nil-rate band. The findings come six months before the Government introduces a new IHT allowance for people passing on their main home to a direct descendant.
In 2017, an individual will be able to pass on £425,000 to their heirs, if this includes their main residence, meaning a married couple or civil partnership could pass on as much as £850,000. This new allowance will rise by £25,000 each year until it reaches £175,000 in 2020, when a potential £1m can be passed on. Could the catch here be that in the rush to keep to keep a property and inheritance in the nil rate band since the policy was announced last year, house prices have been pushed up due to the perennial lack of supply and increased demand? Incidentally, this is exactly what one commentator, Rick Schofield of accountants Wilkins Kennedy, warned about last year. He said: “Property prices in London vary significantly compared to elsewhere in the UK, so whilst people in the South East may try to move so they can fall below the inheritance tax threshold, this could also impact on the availability of housing for those trying to move up – or even first-time buyers.” Ken Hume, of agents James Alexander, is unconvinced. He told EYE: “I think that the Government saw the big tax take coming due to property price rises and made a clever move by moving the thresholds to appease the masses. “Especially now that, given the rise in Stamp Duty for investors, their net take from property grabs more than most taxes “I am personally not convinced that prices will rise because of it, rather the rules of supply and demand and its favoured status as an investment will mean that it continues to defy the doom mongers “I feel that the market will still surprise many with its resilience this year but two things we can always expect are death and taxes.” What do you think?