We have a lot to thank the French for; steak-frites, Cognac and Arsene Wenger. How­ev­er, one unwel­come French import has been Inher­i­tance Tax (IHT).

Tax on death was first offi­cial­ly intro­duced in Eng­land in 1796. Back then, the tax was known as ​‘lega­cy, suc­ces­sion and Estate duties’ and was intro­duced as a way of fund­ing war against the French. From sin­is­ter begin­nings, it devel­oped into a way of redis­trib­ut­ing wealth from the very rich­est in soci­ety to the poor­er mem­bers. This fol­lowed the phi­los­o­phy of the French Rev­o­lu­tion ideals of a fair­er society.

IHT has been set as low as £20 in the Nine­teenth cen­tu­ry but today it is set at £325,000 for a sin­gle per­son and £650,000 for a mar­ried cou­ple. IHT is often thought of as a ​‘rich man’s tax’, ​‘a nice prob­lem to have’ and one that doesn’t affect ​‘ordi­nary’ peo­ple. How­ev­er, as house prices have increased, this view has become increas­ing­ly redun­dant as the num­ber of ordi­nary peo­ple caught by tax increases.

In the South East of Eng­land, the aver­age price of a house is now over £326,000 which means it has over­tak­en the IHT tax free allowance of an indi­vid­ual per­son. As the South East con­sti­tutes between 30% and 40% of the pop­u­la­tion of Eng­land (depend­ing upon the def­i­n­i­tion used), it means over 22 mil­lion peo­ple may have to deal with IHT at some point in their lives. Cur­rent­ly, over half of all the IHT paid in Eng­land is paid by fam­i­lies liv­ing in the South East, with the aver­age amount paid stand­ing at over £160,000.

The prob­lem is most acute in wealth­i­er areas, par­tic­u­lar­ly in Lon­don with the aver­age house price in Bel­gravia stand­ing at over £5 mil­lion. Although most peo­ple will expect the inhab­i­tants of Bel­gravia to pay tax on their man­sions, the hous­ing boom has also affect­ed tra­di­tion­al­ly afford­able areas such as Hack­ney. Here, a com­par­a­tive­ly mod­est semi-detached will set you back over £550,000, which is £225,000 over the indi­vid­ual tax free allowance. This has caused many ordi­nary peo­ple to be caught out by tax sim­ply because they are unaware of the poten­tial IHT con­se­quences caused by a rise in the val­ue of their home.

Unfor­tu­nate­ly, this a prob­lem that is no longer con­fined to bil­lion­aire bankers in their Bel­gravia man­sions. As the prob­lem has spread from the city to the coun­try­side, it has also start­ed to affect fam­i­lies that usu­al­ly have no need to make plans to avoid IHT.

In the Sur­rey ​‘gold­en tri­an­gle’ of Godalm­ing, Oxshott and Vir­ginia Water, ask­ing prices are aver­ag­ing over £1,800,000. Across the bor­der in neigh­bour­ing Buck­ing­hamshire, house prices in Bea­cons­field, Chal­font St Peter and Gerard’s Cross are over £1,200,000.

Even in the more afford­able coun­ties such as Essex, detached homes are now aver­ag­ing over £900,000 in the Epping For­est gold­en tri­an­gle of Loughton, Chig­well and Buck­hurst Hill.

Although the boom in house prices has main­ly affect­ed Lon­don and the South East, the North of Eng­land is now start­ing to expe­ri­ence the same prob­lems. The north­ern gold­en tri­an­gle of Alder­ley Edge, Hale Barns and Knutsford is fast catch­ing up with its south­ern coun­ter­parts, with aver­age ask­ing prices now reach­ing £600,000. The recent move of the BBC to Man­ches­ter can only con­tin­ue the trend towards high­er and high­er prices.

An unin­tend­ed con­se­quence of the house price boom is that many peo­ple are now caught by Inher­i­tance Tax. Unfor­tu­nate­ly, this prob­lem is made worse by many peo­ple being unaware of the poten­tial prob­lem loom­ing on the hori­zon. This has caused many hard­work­ing fam­i­lies to be caught in an Inher­i­tance Tax trap of being unable to avoid it.

As is often the case in life, recog­nis­ing the prob­lem ear­ly and tak­ing nec­es­sary action can, in many cas­es, mean IHT is com­plete­ly avoid­ed. Inher­i­tance Plan­ning is becom­ing increas­ing­ly impor­tant and must be con­sid­ered as part of the process when buy­ing or sell­ing a house. This is espe­cial­ly true for fam­i­lies liv­ing in Lon­don or the South East where the aver­age house is already worth more than the tax free allowance.

To arrange a dis­cus­sion about IHT, please get in touch with Paul Clark on 01625 523988 or mail@​JBGass.​com