Property investors must act to avoid 40% tax bill

by Mark Alexander

11:23 AM, 28th October 2010
About 10 years ago

Property investors must act to avoid 40% tax bill

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Property investors must act to avoid 40% tax bill

The best laid Tory plans to boost inheritance tax (IHT) thresholds to £1 million after the election were shelved as a result of pressure from the Lib Dems when forming the coalition government.

That means IHT limits are stuck at £325,000 for the life of this Parliament – probably until 2014.

The trouble for property investors is that even owning just two ‘average’ priced homes blows through the limit without even considering any other savings or investments.

According to the recent Halifax house price index, the average house price is about £168,000, while other surveys suggest this price may be as much as £200,000.

Breaching the £325,000 top limit – £650,000 for married couples, those in a civil partnership, widows or widowers – means the estate pays IHT at a hefty 40%.

A property portfolio of £1 million would mean a tax bill of anything between £275,000 and £400,000, depending on whether the deceased was married or single and other factors.

IHT is one of those taxes where some strategic planning and managing financial assets can negate or wipe out the tax:

  • Write a will – a will is a key financial planning tool that makes sure the possessions you want to go to specific people end up in their hands
  • Give your cash away – gifts to anyone of up to £5,000 a year are IHT free for you and free of capital gains tax for them. If you can maintain your current standard of living, there is no limit on how much you can gift this way
  • Invest alternatively – some property investments are IHT-free, like woodlands, farms and farmland
  • Consider a trust – assets gifted to a trust are outside your estate after seven years
  • Life insurance – life insurance plans written under trust mean the payout will go directly to an individual and are IHT free.

Wills, gifts and trusts need careful setting up by experienced estate planners to avoid the many potential pitfalls that can unravel all your best intentions.

For further information regarding our Estate Planning services please telephone our Customer Care Team on 01603 894525.


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