With house prices predicted to rise by around 6% per year - what does this mean for the inheritance tax nil rate band? Well, apparently nothing until 2019 at the earliest. George Osborne has indicated that the nil rate band, currently set at £325,000 per person (or £650,000 for a married couple) is set to remain at the current 2009 level until at least 2019.
The rise in house prices (along with rising share prices) means that far more people will have estates which have a total value of over £325,000 and, as such, anything over £325,000 will be taxed at 40%. As the nil rate band is now set to remain the same until 2019, we will be seeing the amount that our clients can leave without paying IHT effectively reduce over the next few years. I am receiving more and more enquiries from clients who are now concerned that property they had hoped to leave to their families will have to be sold to pay a hefty inheritance tax bill on their death.
Luckily there are steps that people can take to minimise this liability. I advise my clients to ensure that they keep up to date and aware of what their property is with and plan with house price increases in mind. Making a Will is vital to avoid paying unnecessary inheritance tax and there are a variety of additional steps that clients can take in order to maximise the assets which are passed directly to their chosen beneficiaries.
In an additional blow, there are also plans to restrict the total amount that individuals can put into trust to £325,000. Under the current rules, an individual can set up a number of trusts and each will have its own individual nil rate band. The consultation is open until the end of August 2014 but the provisional plans seem set to proceed and, if implemented, will be applied from 6 June 2014. HRMC have indicated that they don't intent to apply the rules retrospectively so if you already have established trusts then these will continue to operate on the current rules. The HMRC consultation document suggests that the measures are designed to simplify the process but in practice this restriction will mean significantly increased tax bills for many of our clients.