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How do you know if your estate will be liable for Inheritance Tax and what is the biggest single factor in Bristol?

A couple discuss how much their Inheritance Tax bill might be.
Graham Southorn
25 May 2023

It could be your house.

But before discussing the value of your property, there are 4 important things to say about Inheritance Tax:

  1. Your estate may not have to pay Inheritance Tax
    If the value of your estate is under your available allowances and exemptions, there’ll be nothing to pay. According to Government figures, just under 4% of deaths in 2019-2020 resulted in an Inheritance Tax charge.
  2. Inheritance Tax is “voluntary”
    It’s often described as a voluntary tax. What this means is that most people can legally avoid it with the right Will and a bit of forward planning.
  3. It’s impossible to predict the value of your estate when you die
    You could end up with a lot less money to pass on if you have to pay for care fees, for example. Alternatively, you may have more money, due to your investments doing well or property prices going up. You may also have given assets away.
  4. We don’t know what the tax laws will be when we die
    The inheritance tax-free allowances have been static for several years. A future Government might be generous and scrap Inheritance Tax altogether. Or it could put the rate up, or allowances down, to raise even more tax. We con’t know, so the best advice is to plan on the basis of the current rules.

So back to your house or, more to the point, its value. According to this article by Bristol Live, the average price of a property is £303,500 in Bristol East – the lowest average of the four Parliamentary constituencies.

Average prices are far higher than this in particular areas such as Westbury on Trym (£725,000), Henleaze (£678,000) and Southville (£448,500).

But let’s work on the assumption that you own a house worth £303,500.

If you are single

By “single”, I mean that you are not married or in a civil partnership and also that you are not a widow or widower. You might be in a long-term relationship, just not married.

If your main residence passes to your children, you will have up to £500,000 available in allowances (nil rate bands).

I say “up to” because this is where there are various factors involved and it can get complicated. I have an Inheritance Tax factsheet with more information about this which you can download but you should also take expert advice.

Now think about your other assets, like investments and savings. Added to the value of your house, will they push you over the £500,000 threshold?

If so, your estate may have to pay 40% on the excess. I say “may” simply because there are so many factors involved.

If you’re a married couple or civil partners

You can do the same sort of back-of-the-envelope calculation if you’re married.

But now your total tax-free allowances as a couple add up to a maximum of £1,000,000. This is when the second partner dies.

So based on these figures, if your property is worth more than your savings, your house would have to be worth a lot more than £303,000 to push your estate over the limit and lead to an Inheritance Tax charge.

Things change

But of course, that’s the situation now.

What about in the future? Well, property prices in the city of Bristol have increased by a staggering 105 per cent over the last 10 years. They may not increase by nearly as much in the next decade (or they might take us by surprise). It’s impossible to predict.

There’s no doubt that the increase in property prices has dragged many more estates into the net for paying inheritance tax.

In my experience

When writing their Wills, many of my clients in Bristol aren’t aware of the Inheritance Tax allowances and what their estates might pay.

Indeed, some of the people who were most anxious about it need not have worried because their estates were well under the available limits.

Others don’t care about inheritance tax at all, which is a perfectly valid perspective!

Fortunately, for some clients I have been able to write Wills and provide other forms of planning that maximise their tax-free allowances so that their children will inherit more.

As part of my regular Will-writing process, I will discuss your assets and let you know if inheritance tax may be an problem for your estate.

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