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How to deal with the rising impact of Inheritance Tax on family homes
14 November 2023

Inheritance tax (IHT) can be a sore subject for some taxpayers, especially when it comes to passing on the family home to the next generation.

Often referred to as a “death tax” it cannot be ignored if you intend to leave considerable wealth to your beneficiaries.

Recent developments indicate that more families than ever could be affected by IHT due to frozen tax thresholds and escalating property values.

The current law

As it stands, the law stipulates that any estate worth more than £2 million starts to lose a tax break on the family home, known as the residence nil-rate band.

This additional allowance of £175,000 per person allows married couples and civil partners to pass on up to £1 million completely free of IHT by pooling this allowance from each person and combining it with their standard nil rate band, which offers an additional £650,000 per couple.

Despite skyrocketing property prices, this allowance has not been updated since its introduction in 2017 and will remain frozen for five more years.

The growing concern

According to a recent article by The Telegraph, the number of families affected by this rule is set to rise dramatically as a result.

Five years ago, only 2,200 families were impacted by IHT, but by 2028, this number is expected to soar to over 5,000 families per year.

This is largely due to the Government’s decision to keep the nil-rate thresholds frozen while property values continue to rise.

What are the implications for you?

If you are a homeowner with an estate valued over £2 million, you stand to lose this valuable tax exemption.

The residence nil-rate band begins to taper off, reducing by £1 for every £2 over the £2 million threshold. For estates worth more than £2.7 million, the allowance is wiped out entirely.

If you are nearing or above this threshold, proactive estate planning is crucial. Whether it’s through gifting, setting up trusts, or other tax-efficient strategies, there are ways to mitigate the impact of these IHT changes.

What can you do?

We strongly recommend reviewing your estate and speaking with one of our expert accountants to explore the best strategies for your specific situation.

The aim is to ensure that your hard-earned assets, especially your family home, are passed on to your descendants in the most tax-efficient manner possible.

While the residence nil-rate band was introduced with good intentions, its complexities and frozen thresholds are catching more families in the IHT net.

As a trusted accountancy firm, we are here to guide you through these intricate tax landscapes. For a personalised consultation, please don’t hesitate to contact us.