In the last few years, the UK’s property market has boomed, nowhere more so than in Edinburgh where property prices rose by 5 percent in 2019. But what this has also led to is the title for the UK’s largest increase in inheritance tax bills, according to Scottish Legal News.
The law firm Boodle Hatfield reports that the increase in bills for Edinburgh residents rose by 315 percent to £54 million in 2018 to 2019. The sum equates to about £212,598 paid in tax per estate, although some residents will have paid far more or far less. This compares to 2018 when only £13 million in inheritance tax was collected from Edinburgh residents, with the average working out at £149,425.
House price inflation has paid its part. Other areas of the UK have also seen substantial rises in inheritance tax takings. A family home in an expensive area can often push an estate into a position where the heirs must pay inheritance tax.
Bedford substantial rises
In Bedford in England, inheritance tax totalled £6 million in 2017-18, rising to £11 million in 2018-19, despite the number of estates eligible to pay inheritance tax increasing by a mere 51 to 57 (six in total). In Glamorgan, Wales, inheritance tax totals increased from £15 million to 327 million over that same time frame, with the number of estates paying rising from 108 to 126.
The allowance for inheritance is £325,000, with 40 percent charged on any amount above this sum, although if the family home passes to a direct descendant, this factor can result in an estate paying nothing.
There is also the residence nil rate band, where estates are entitled to pass on an additional £175,000 in value of a main residence, as long as the estate is worth less than £2 million. If the value of an estate is surplus of £2 million, the allowance decreases by £1 for every £2 above £2 million of the estate’s worth. Widows and widowers can pass on up to £1 million tax-free to their spouses, as they inherit their partner’s allowances.
Geoffrey Todd, partner at the firm Boodle Hatfield, told Today’s Wills and Probate that many families had big rises in inheritance tax bills because the thresholds have not risen in line with house price inflation. He added that this trend was likely to continue for the next few years because the inheritance tax allowance was to remain at its current level until 2026.
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