Skyrocketing property prices could leave you IHT “bust”

The pandemic has pushed house prices up to record levels which is great news if you're in the market to sell or invest long-term. However, there is a downside if you are about to inherit property. 

Inheritance tax (IHT) is payable based on the value of someone's estate after they pass away. If that value exceeds £325,000 (below that amount, the estate is considered free from IHT), the tax payable is set at a flat rate of 40% - meaning it has become one of the most controversial taxes of our time.

But, as it is also one of the Treasury's most lucrative taxes, the best thing to do is to try and reduce that liability wherever possible and take action ahead of time to reduce that bill. However, the recent rise in property prices is seeing estate values rocket, leaving many hard-working people out of pocket - or IHT bust.

According to a survey published by Tower Street Finance, published in the Express 45% of UK adults plan to sell any property they inherit, but almost one fifth of people (18%) plan to use any property to either live in themselves or rent out.

However, these people may find the value of their homes has skyrocketed so much, they may be forced into selling to enable them to cover their IHT bill. This is not helped further by the fact that the Government has frozen the IHT threshold until 2026 at £325,000, where raising that threshold, even in line with inflation, would have brought down the amount payable on the estate. A further £175,000 Residence Allowance is potentially available to those with children and/or grandchildren who inherit their estate, if it consists of a property.

However, with the average property in the South East currently hitting £337,000, and in London currently that average is £487,000, both values are already above that £325,000 IHT threshold. By 2025, when the IHT threshold is next due to be reviewed, those average prices are forecast to hit £394,000 and £584,000 respectively; the availability of both allowances being insufficient to avoid an IHT bill for those in the most expensive parts of the country.

This situation could leave many people IHT "bust" almost immediately, just based on the property value alone, without taking other assets and valuables in the estate into consideration. The only people protected from IHT rules on a home are spouses and civil partners.

As with anything, you should always seek legal advice and the property team at Downs Solicitors might be a good place to start. Contact us to see how we can help.


Jenna Hopkins

Jenna Hopkins


Tel: +44 (0) 1483 411525

Office: Godalming Office