Not Wealthy Enough For Inheritance Tax? Think Again…

by | May 23, 2021 | Blog, Knowledgebase

For some, talking about inheritance tax might conjure up images of the very wealthy – stately mansions and trust funds, rather than your average family.

But the threshold where inheritance tax becomes payable might be lower than you think, and with house prices increasing and available inheritance tax allowances remaining frozen, many families might be hit with a surprise tax bill.

Estates increasing in value is one thing. Getting enthusiastic about estate planning is another. Recent articles in the trade press have revealed that more and more people are putting off long-term financial planning discussions with their advisers because inheritance tax is too emotional, or worse, that their estates are simply not high enough in value for it to be an issue.

According to the Office of National Statistics 2018 survey, 19% of households in the UK have between £500,000 and £1million in net assets. A four-bedroom home might feel a little average when compared to a palace, but a number of people might be shocked to learn that the taxman will also be a beneficiary of their estate.

Inheritance Tax Thresholds

Inheritance tax becomes payable on assets valued above your Nil Rate Band – currently £325,000. Anything above your Nil Rate Band is taxed at 40%.

If you are married or in a civil partnership, you can also inherit any unused Nil Rate Band from your partner. Assets can be transferred between spouses and civil partners with no tax to pay and inheriting a partner’s allowance could boost your available allowance to £650,000.

A further important tax allowance comes in the form of the Residence Nil Rate Band, providing a further £175,000 if you leave your family home to a direct descendant – children or grandchildren only, as other family members and friends do not count. This tax-free allowance can be inherited too, meaning you could potentially up your available inheritance tax allowance to £1million in some cases.

Frozen Allowances

A house is usually the highest valued asset that an individual can own, and typically makes up quite a significant portion of an estate.

The latest House Price Index from Halifax show an 8% increase in the average price of a home in the UK in comparison to April 2020. While increases might not be as dramatic as this in future, the value of bricks and mortar is still likely to increase over time.

Investment returns, as the market recovers from the Covid-19 pandemic, will also likely increase.

The Nil Rate Band, and Residence Nil Rate Band, however, will be frozen until the 2025/26 tax year. A lot of growth can happen in four years – more people than ever will be pushed beyond the current inheritance tax allowance threshold and face increasing tax bills.

Some of us will be fortunate to live in areas of the country with higher-than-average property prices, making an inheritance tax position even more difficult. And if you moved into your forever home some time ago, you might not be aware of any sudden surge in your property’s current value.

Add in a handful of investment accounts, cash savings, even the tax-free lump sum from your pension, and your estate could quickly become subject to tax.

Inheritance Tax Advice

Tackling inheritance tax does not have to be depressing and it is better to address it earlier than later.

There are various solutions that can help mitigate your inheritance tax bill, from simply spending surplus cash assets or gifting funds to your family and friends, to complex investment and trust planning solutions that allow your wealth opportunity to grow in future. A combination of these options can make a real difference on any future tax liability – but sorting out a complicated estate can be confusing and time consuming.

Add into the mix potential tax consequences of implementing a solution in the wrong order and you can understand why some of us would prefer not to think about tax planning at all.

This is where we come in; not only do we at Path Financial pride ourselves on our ethical investment proposition, but on our expert financial advice, which you can also be sure is discreet and sensitive.

Our Financial Planners can offer tailored estate planning advice to ensure your wealth can be passed on as tax-efficiently as possible. And with our positive impact investment strategy, you can be confident that you are not only leaving a meaningful legacy for your own family, but for a sustainable planet too.

If you are interested in further inheritance tax advice, or want to join our positive impact mission, book your free consultation with one of our Financial Planners today.

About the author

Casey Goodwin

Casey Goodwin


Casey has been working within the Financial Services sector for 6 years, having recently completed her Chartered Insurance Institute Diploma in Regulated Financial Planning. A passionate paraplanner, Casey was inspired by our vision to provide quality financial planning advice whilst being at the forefront of making a positive financial impact in the world. Having a personal interest in ethical investing, Casey knew that this was possible without having to sacrifice good returns.


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