06 September 2016, 01:00
06 September 2016, 01:00
Property sales above Inheritance Tax limit reach record high in 2016, finds Saga Investment Services
• More than one in four properties sold so far in 2016 exceed inheritance tax ‘nil-rate band’ of £325,000
• Surging house prices in the capital mean that three in every four properties sold for more than £325,000
• Six months until a new ‘main residence’ allowance is introduced
The proportion of properties sold in England and Wales above the £325,000 Inheritance Tax (IHT) ‘nil-rate band’ is heading to a record high in 2016, according to new research carried out by Saga Investment Services.
Earlier this year, Saga found that 24% of properties sold in the year of 2015 exceeded £325,000, an increase from 13% in 2009 when the nil-rate band was first set. In fresh analysis of property sales data from the Land Registry for the first seven months of 2016, that figure has edged up to 26%, meaning more than one in four properties were sold over the nil-rate band.
Saga analysed1 data in 105 postcode areas in England and Wales and found that the biggest areas for growth were predictably in London. In central London, four out of every five (82%) properties sold so far this year exceeded £325,000, up from 76% in 2015. Almost all properties (95%) sold in the EC postcode area, marginally up from 94% in 2015. North London has seen a bigger jump, from 76% to 83%, while South East London has increased from 63% to 71%.
In addition to this, almost two thirds of properties in outer London were sold for more than £325,000 in the first seven months of the year, up from 55% last year. In Twickenham, Kingston, Bromley and Harrow, more than 70% of properties sold exceeded £325,000. For inner and outer London in total, almost three in every four properties sold (72%) in 2016 exceeded the IHT nil-rate band, compared to 65% in 2015, and 34% in 2009.
Overall, there has been a small rise in the proportion of properties sold for more than £650,000 – the maximum that can be passed on by someone who inherits any unused IHT allowance from their spouse or civil partner. Some 5.8% of property sales exceeded £650,000, up marginally from 5.4% in 2015, and more than double the 2.4% of properties sold in 2009.
A third of properties (33%) sold in central London exceeded this amount, up from 30% last year. One in five properties across 11 postcode areas were sold for more than £650,000. This has risen from just three postcode areas in 2009.
The findings come six months before the government introduces a new IHT allowance for people passing on their main home to a direct descendant. In 2017, an individual will be able to pass on £425,000 to their heirs, if this includes their main residence, meaning a married couple or civil partnership could pass on as much as £850,000. This new allowance will rise by £25,000 each year until it reaches £175,000 in 2020, when a potential £1m can be passed on. See notes to editors for more details on the main residence allowance.2
Commenting on the findings, Gareth Shaw, head of consumer affairs at Saga Investment Services, said:
“The latest figures suggest that 2016 will be a record year for property sales exceeding the IHT nil-rate band. And with more people dragged into the IHT net simply because their property has risen in value, the tax is no longer just an issue for the wealthy.
“The main residence allowance will give this group of people in a property hotspot some welcome relief, but the rule will introduce more complexity to the already-confusing UK tax landscape. For anyone who believes their estate may be subject to IHT, early action with a professional financial planner will be a valuable investment.”
Notes to editors
1. Saga Investment Services analysed property sales data published the Land Registry for the first seven months of 2016 across 105 postcode areas in England and Wales.
2. On 6 April 2017, a new IHT allowance will be introduced for people passing on their main home to a direct descendant. The Government defines a direct descendant as a child (including a step-child, adopted child or foster child) of the deceased and their lineal descendants. This allowance will rise each year, from:
- £100,000 in 2017 to 2018
- £125,000 in 2018 to 2019
- £150,000 in 2019 to 2020
- £175,000 in 2020 to 2021
This means married couples and civil partners can pass on a possible £1m to their family. The allowance will then rise with inflation, measured by the consumer prices index, from 2021 onwards. If someone downsizes their home, they will still be able to pass on assets to the equivalent value their current home to direct descendants. However, estates exceeding £2m will see the additional nil-rate band withdrawn, tapered at a rate of £1 for every £2 their estate is above this amount.
About Saga Investment Services
Saga Investment Services has been developed to open up the world of investing and financial planning to the UK’s over 50s in the run up to and throughout retirement, and to make the process as simple and stress-free as possible. Customers can invest from just £100, and have access to investment advice and financial planning services. Saga Investment Services champions a straight forward and transparent approach to investing, and is a proud member of the Plain English Campaign. It is a joint venture between Saga, the leading provider of services to the nation’s over 50s, and Tilney Bestinvest, the expert investment and financial planning group.
Gareth Shaw, Head of Consumer Affairs.
E: firstname.lastname@example.org M: 07738 777 330
Angela Clifton, senior communications manager
E: email@example.com T:01303 776 504, M:07748 336 310
The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested.
The above article is based on our inheritance tax rules and related legislation; it is not intended as advice, and the impact of any changes to tax rates or allowances will depend on your personal circumstances. Please note we do not provide tax advice.