Customers helped

Don't fall into the inheritance tax trap

Updated 24 November 2022

2min read

Nick Green
Financial Journalist

Inheritance tax is now one of the biggest threats to your family wealth, but with careful planning, you could save your loved ones hundreds of thousands of pounds.

Make sure inheritance tax doesn't cost your loved ones

There’s a good reason why inheritance tax (IHT) is described as the most hated levy of all. An Englishman’s home is his castle and it’s right in the IHT firing line. Inheritance tax on property is a major threat to your family’s wealth.

Recent rapid increases in house prices, especially in London and the South East, mean that many risk an IHT bill running into hundreds of thousands of pounds.

“By 2018, taxpayers could pay a total of £5.6 billion in IHT every year”

The good news is that there are things you can do to reduce your IHT tax liability, but you have to perform inheritance tax planning carefully, because the rules are complex. You can’t just give your property away.

Seven year itch

If you make a gift of your property, you have to live another seven years before it is completely free of IHT. This is known as a potentially exempt transfer.

Even then, you could still face inheritance tax on property if you gift your home to your children with conditions attached, or continue to benefit from the property yourself.

There are things you can do to limit the IHT liability on your main residence.

Renting your own home

You could give your property away and move out of it altogether. Or you could even continue living in it, provided you pay a market rent to the new owner.

This is a technical area and requires specialist inheritance tax planning.

Don’t do nothing!

Don’t bury your head in the sand and hope for the best. UK house prices are forecast to rise by 6.5 per cent a year until 2018, so doing nothing is not an affordable option.

Successful individuals with properties in London and the South East will be particularly hard hit. Especially since their homes are likely to be far more expensive than the average. By 2018, the average London property will cost £600,000 but the IHT threshold will be stuck at £325,000.

Don’t underestimate how big a threat inheritance tax on property is to your family’s wealth. Otherwise you will all pay a hefty penalty. By 2018, taxpayers could pay a total of £5.6 billion in IHT every year.

An up-to-date will is imperative for your family’s financial well being after you’re gone. Speak to a whole of market financial adviser to help you plan inheritance tax and make sure your will is written and up to date.


About the author

Alan Smith is the CEO of Capital Asset Management. His specialisms include: wealth management, strategic financial planning and creative tax planning.

Please note: The opinions, beliefs and viewpoints expressed by our contributing authors do not necessarily reflect the opinions, beliefs and viewpoints of unbiased.co.uk.

About the author
Nick Green is a financial journalist writing for Unbiased.co.uk, the site that has helped over 10 million people find financial, business and legal advice. Nick has been writing professionally on money and business topics for over 15 years, and has previously written for leading accountancy firms PKF and BDO.