Higher house prices upset estate planning in 2022

Inheritance tax (IHT) nil rate band is frozen until 2026, as house prices rise, so take action now to limit your liability

UK average house prices increased by 9.8% over the year to March 2022, with investors closely monitoring this rise. Homeowners may be glad of this increase – but not understanding how it will impact their inheritance tax bill.Freezing the Nil Rate Band (NRB)

Your home can represent a large proportion of your estate. As average house values increase, and the NRB remains frozen, more estates are becoming liable to greater IHT bills. The NRB (the threshold above which inheritance tax is paid) has been fixed until 2026, with the basic threshold at £325,000. The rate is then usually 40% on anything above this amount.HMRC cites this as one reason for its increased receipts in its report of £6.1bn from IHT receipts last year – stating that the latest increase is ‘likely due to a combination of the ongoing effects of the Covid-19 pandemic, recent rises in asset values and the government’s decision, in March 2021, to maintain the IHT nil rate band thresholds at their 2020/21 levels…’.

For many individuals this freeze could see more of their estate being inherited by the tax man, rather than their loved ones. It is essential that clients review and take advantage of the exemptions and reliefs available to them.

Estate planning: where to start

A good place to start with estate planning is to find out how much of your estate would be liable for inheritance tax. While there are online calculators, you can also ask your financial adviser to help. Together, you can look at available exemptions, reliefs and gifting rules to help ensure that your legacy supports your loved ones – not the tax man.

Independent Financial Adviser, Andrew Mence, shared a story of a recent case. “I met with some clients recently, a couple aged 70 and 75, who wanted to get their affairs in order. We found that their IHT bill would be nearly 15% of their estate. As per their wishes, we considered a variety of solutions, ensured their Will was up to date, and enabled them to pass down as much of their estate to their children as possible. I was delighted to be able to support this and give them peace of mind about their children’s future.”

Why should you review your estate planning today?

It’s a common myth that many of us don’t need a Will or estate planning, because some don’t believe they have enough assets to need any planning. Yet in England own their own homes, and rising house prices will leave many more of us triggering the frozen Nil Rate Band in future.

Additional services can support your financial planning

Wren Sterling’s advisers are not solicitors or Will writers. We leave that to the experts. Which is why we’ve been working with Accord Legal Services to ensure our clients have valid and up-to-date Wills – as this is the cornerstone of estate planning, and the only way to help ensure that your wishes are carried out after you pass away.

Simply engaging in the process of making a Will can be useful, as it allows you to consider various scenarios, and what you would want to happen. Figures show that fewer than 4 in 10 adults in the UK have made a Will – yet not even the pandemic was enough to address gap in the UK’s Wills. A recent report from IRN found that only 4% of those making a Will said that they were persuaded to do this as a response to the Covid-19 virus.We know it’s not easy to make such big decisions about your legacy. And you don’t have to do it alone. Financial advisers are equipped with the knowledge and expertise to help you make the decisions that will affect you and your family’s future.

So, if you have a question about how inflation will affect your estate planning, or need to update your plans, speak to your adviser today.The Financial Conduct Authority does not regulate taxation and trust advice and will writing.