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Should Landlords Be More Concerned About Inheritance Tax?

Inheritance tax receipts hit £600 million in April 2023 according to data released by HMRC. This is £100 million higher than in April of the previous tax year.

Years of house price increases, soaring inflation, and tax freezes have pushed an increasing number of families that would not consider themselves to be wealthy above the threshold for inheritance tax.

There is a tax-free inheritance allowance called the nil-rate band that applies to everyone. Each person can pass on up to £325,000 of their estate without them having to pay any IHT. Anything above £325,000 could be subject to up to 40% inheritance tax. The nil-rate band has stayed at the same level since April 2009, even though inflation has cut the value of the relief by 32.8% over that time and the average house price has increased nearly 85%. 


Some homeowners can also benefit from a ‘residence nil-rate band’ of up to £175,000 on top of the nil-rate band. This, however, only applies when you pass on your main residence to a direct descendant. The ‘residence nil-rate band’ has been frozen at £175,000 since April 2020. 

The 2023/24 tax year is looking likely to be yet another record-breaking year for inheritance tax. It really is a cash cow for HMRC.

There are rumours inheritance tax cut could be cut in the run up to the next General election, with the government potentially increasing the threshold at which an estate becomes liable for inheritance tax. Alternatively, the government might consider a cut in the headline rate of tax. Either would be very welcome by the large numbers of affluent, but far from uber rich, households that are being hit by this most hated of taxes.

But in some circles, inheritance tax is already called the voluntary tax because so much can be avoided or mitigated through government backed investment schemes and careful tax planning. Writing a will is a good start. If you don’t your assets will be distributed according to intestacy rules and could be subject to IHT which could otherwise be avoided.

Those concerned about inheritance tax should also consider;

- Giving money away early. Gifts taken out of regular income, which are not deemed to affect the giver’s standard of living, are inheritance tax free on day one – as are certain smaller gifts. Timing is key as you can give unlimited amounts away but typically these take seven years to be completely inheritance tax free. Of course, once you give away the money you’ve lost control. If you need it back for an emergency, that’s not an option.

- Investing in companies that qualify for Business Property Relief. These are typically inheritance tax free after two years. Investing in unquoted businesses can be risky, however, unlike giving the money away, you retain control.

- Investing in an AIM ISA. ISAs are not inheritance tax free. When you pass away, your loved ones could miss out on 40 per cent of your hard-earned cash.  AIM ISAs are a popular way around this. They are riskier but after two years they could be IHT free.

* Alex Davies is chief executive and founder of Wealth Club * 

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  • icon

    Nope, I am more ( read VERY) concerned about a Labour government and what they will do about CGT 🆘🆘, I don’t intend to get too old to enjoy the capital I have built up so inheritance tax is the least of my concern.

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    I’m exceedingly concerned about IHT - it’s one of the many taxes that keep me awake at night. But not for one single second do I think the Tories have the slightest intention of making it easy on taxpayers, particularly if their wealth came from property. I haven’t the feintest belief that they will change IHT for the better, and when Labour get in it’ll be 40/45% for CGT, IHT and, knowing how economically illiterate they are, corporation tax as well!

    Peter Why Do I Bother

    I have recruited two of my three daughters into the property field to understand them and how best to plan.

    I am not paying a single dime
    To these shysters in tax over and above the normal rate with rent less repairs.

    In the future I will raise money on the mortgages for my use up to the purchase price. This will all be done in agreement with my daughters who agree with me in principle. They are shocked at what has to be paid in maintaining them and then taxation.

    If the government had been fair with us then I would have sold them paid the tax and split it with the daughters. Now they can whistle….

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    My BTL are all interest only to allow me to enjoy my income, apart from large amount going in maintenance after the tenants exiting the property and all the relevant expenses like gas boiler service, certificates. I have been spending on electricity certificates long before it became law. In the last 5 years I have reduced some of the buy to let mortgages to get them to be under 50%. IHT is a worry but I shall spend on travel and give it away to family and friends children and charities before I go. This will be as I sell my properties. 5 years ago mortgages totalled £2.6million. Now £1.4M. Our personal home mortgage was huge and now a lot smaller will be paid off within the next year or so.


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