Inheritance Tax: A Word to Hampstead Landlords and Home Owners

Posted on June 7th, 2017.

With the average value of a Hampstead property far outstripping the London average, the 15,858 home owners and landlords will no doubt have the issue of Inheritance Tax top of mind. The average age of the first time buyer now stands at 39 and with an increasing number of people living at home well into their thirties, most will only get on the first rung of the ladder helped by the Bank of Mum and Dad or from any inheritance they may stand to get.

The former Chancellor, George Osborne, announced the changes in his 2015 Summer Budget. This will mean that the current threshold of £325,000 per person was increased by a further £100,000 each from April. This has raised the  allowance to £425,000 and it will be raised by a further £25,000 each year until 2020 to the maximum of £500,000 or £1m per couple. For single persons this will equate to £425,000 as of now and up to £500,000 by 2020.

As of now , the allowance of £425,000 each is transferable should you be in a marriage or civil partnership, therefore the surviving spouse or partner will have a maximum tax free allowance of £850,000. This is classed as the “Nil Rate Band”.

This allowance is only applicable to your main residence and on the condition that the beneficiaries are a direct descendant , that is children , step children and grandchildren.

The outlook for the long term-by 2020 all the changes will have been phased in, below are the key points.

1) Couples will have a tax free allowance of up to £1m – this will comprise £325,000 x 2 and £175,000 x 2. For single persons – £325,000 + £175,000 making a total of £500,000.

2) Any property that  has a value of £1m to £2m will be taxed at the rate of 40% over the threshold

3) Any property that has a value of over £2m home owners will lose £1 of the main residence allowance for every £2 of value above £2m. For example, if the main residence has a value of £2,350,000 or more, there are no further concessions.

The Winners

  • Down sizers- For those who have disposed of their main residence will likely have a large surplus or lump sum that otherwise have been the equity in the property.  You will still be able to pass on the same value of your estate.
The Losers
  • Single person Homeowners- The direct descendants of  a single parent will only qualify for either £425,000 tax free allowance (2017) and up to £500,000 (2020). This is on the basis that there is only one allowance that is applicable, therefore will not receive the full benefit if the parents/grandparents were married or in a civil partnership.
  • Other assets- Those who own additional assets will not qualify for exemption. Once the value of your estate has been assessed there will be a tax levy on the following.
  • Buy to Let Investment Property
  • Savings or cash in the bank
  • Money paid out from life insurance policies
  • Investments that may include stocks and shares.
Next week, I will be exploring the possibilities of how Hampstead home owners and Landlords can mitigate their tax liabilities and how to best protect their wealth in light of these changes.