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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?

Row of houses in Bristol that could push their owners over the Inheritance Tax limit.
AUTHOR: Graham Southorn

The biggest single factor determining whether or not your estate pays Inheritance Tax could be your house. In this article, I’ll run through some of the factors involved in Inheritance Tax, including the impact of marriage.

But before I get onto your property, here are four very important things you need to know about Inheritance Tax:

  1. Your estate might not have to pay Inheritance Tax at all
    If the value of your estate falls under your available allowances and exemptions (calculated at the time of death), there’ll be nothing to pay. According to Government figures, just under 4% of deaths in 2019-2020 resulted in an Inheritance Tax charge. So that’s by no means everyone, but the number is going up, largely due to property prices increasing.
  2. Inheritance Tax is “voluntary”
    Inheritance Tax often described as a voluntary tax. What this means is that, in theory, you can legally avoid it. You need the right Will and some forward planning. If I notice that you might have an issue with Inheritance Tax in our first meeting, I can offer some possible solutions or refer you to tax experts who can help further.
  3. It’s impossible to predict the value of your estate when you die
    We don’t know what we’ll own when we die. Your investments or property might have gone up (or down). You may have given money away. Or you might have a lot less if you’ve had to pay for care fees. And although it sounds silly, some people really do win the Lottery (fingers crossed).
  4. We don’t know what tax laws there’ll be when we die
    The tax-free allowances that exist at the moment haven’t changed for several years. A future Government might be generous and scrap Inheritance Tax altogether. Or it could put the tax rate up, or lower the tax-free amount, to raise even more tax. We just don’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 – that is the lowest average of the four Parliamentary constituencies in Bristol.

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.

Are you single?

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

If you have children and you own a share in a main residence that passes to them, you may have an Inheritance Tax-free amount of up to £500,000. It depends on the value of the house but this is the maximum amount.

This is further complicated by gifts you make before death, which would lower the tax-free amount. To find out more, I suggest that you download my Inheritance Tax factsheet.

But now think about your other assets besides your house, such as investments and savings. Added together, will they push your total estate value over that £500,000 threshold?

If so, your estate may have to pay 40% Inheritance Tax on the excess amount.

I say “may” because there are other factors involved (of course there are…). Let’s have a look at the main one: marriage.

Are you a married couple or civil partners?

If you are married, or in a civil partnership, you can do the same sort of back-of-the-envelope calculation.

But now your total tax-free allowances, as a couple, add up to a maximum of £1,000,000 (£1 million). These are available when the second partner dies.

So based on these figures, how likely is it that you would pay Inheritance Tax based on current figures.

If you own a house worth the average of £303,000 in Bristol East, you need need other assets worth over £697,000 to push you over the £1 million.

If your house is worth twice as much, it’s a whole different ball game of course.

Things change

But that’s the situation now.

What about 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 given what we know about the state of the economy. But again, it’s impossible to predict the future.

However, there’s no doubt at all that the increase in property prices has dragged many more people into the Inheritance Tax net, just because their house has gone up so much.

In my experience

When writing their Wills, many of my clients in Bristol aren’t aware of the Inheritance Tax allowances and what they 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 didn’t care at all about Inheritance Tax, which is a perfectly valid point of view.

As a Will Writer, I will let you know about Inheritance Tax and whether or not you might pay it, and point you towards possible solutions. Fortunately, I have been able to provide Wills and other products that maximise tax-free allowances so that future generations inherit more.

For further information, download free factsheets on Wills, Trusts, Inheritance Tax, Lasting Power of Attorney and more.

A fan of covers of factsheets on Wills, Lasting Power of Attorney, Trusts and more.

The information contained in these articles is for general interest purposes only. We take every precaution to ensure that the information is correct at the time of publishing but errors can occur. Given the changing nature of laws, rules and regulations, there may be omissions or inaccuracies in the information. Bristol Wills & Estate Planning Ltd is not responsible for any errors or omissions or for any results obtained from the use of this information. You should never rely on the information in these articles as a substitute for professional legal advice, whether from Bristol Wills & Estate Planning or any other legal service or professional.

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