The latest data from HM Revenue and Customs shows that receipts from inheritance tax between April 2021 and March 2022 reached £6.1bn, a jump of £700m on the year before.
According to industry observers, the increase is partly down to the speed of house price growth seen over the last couple of years. Indeed, according to the latest house price index from the Office for National Statistics, house prices jumped 10.9 per cent in the year to February, taking the average to £277,000. In cash terms that works out at an increase of £27,000.
As house prices have grown, it has meant that increasing numbers of people have estates worth more than the current £325,000 inheritance tax threshold, and so have found they are liable for the tax.
Alex Davies, CEO and founder of Wealth Club, noted that inheritance tax is not just a concern for the very wealthy. He explained: “Rising house prices, especially in the South East and London, have pushed many homeowners over the inheritance tax threshold, not helped by the fact that both the nil rate band and residence nil rate band have been frozen until at least April 2026.”
With those thresholds frozen for the foreseeable, but further house price increases expected, it’s likely that increased numbers will be dragged into paying the tax. As a result, brokers have been urged to consider ways they can help clients who want to minimise their inheritance tax liabilities.
Brokers have a responsibility
James McGregor, director at Mesa Financial, said his firm had recognised that inheritance tax was only going to become a larger issue in time, given house price inflation, and so had set out to build its own solution.
He explained: “Due to the need for specialist tax planning we actually launched a chartered accountancy last month to be able to service this area. I definitely believe it is our responsibility as advisers to make sure our clients are fully aware of their financial situations and are also aware of solutions available to help them.
“Collaboration in this industry is key to delivering the absolute best outcomes for our clients.”
Get the right advice
With most people’s wealth tied up in their homes, and “property prices rising inexorably”, inheritance tax looks set to affect an increasing number of families, noted Rob Gill, managing director at Altura Mortgage Finance.
He continued: “We do see enquiries already from older borrowers exploring mortgage debt as a way of mitigating inheritance tax, especially overseas borrowers who can then move cash raised overseas. We’d insist however any such borrower took independent tax advice and would suggest all mortgage advisers do likewise.”
Siobhan Holbrook, owner of Mortgage Light, said that when someone is buying a house, they don’t always consider wills and protection, so her firm will discuss this as part of its service.
She continued: “It’s not just wealth advisors that can help people reduce their tax bills. We offer services with a third-party estate planner or will writer who is able to advise people on tax implications after death. After all, by understanding the market, people are more educated in making decisions best for their family. inheritance tax and capital gains tax are both areas that families definitely can get caught out by, and at Mortgage Light, we offer free advice.”
Inheritance is contributing to house price growth
Sebastian Riemann, director of Virtus Private Finance, agreed that there were great opportunities for cross referrals to wealth managers and independent financial advisers (IFAs) for brokers to explore.
However, he cautioned that these advisers often work on a fixed number of clients and so may not be looking to take on new business, unless they are new to the industry or looking to expand.
Riemann continued: “In many ways these increased inheritance tax liabilities probably filter through in fuelling the house price growth, where the said inheritance is then given to relatives to increase deposits. The gifts via mum and dad are probably largely funded by these inheritance windfalls.”