Inheritance tax hotspots: High house prices hit even if passing to a child or grandchild
Tuesday 17th October 2023
Our recent analysis has revealed that no less than 35 local authorities across the UK are home to an average house price that alone would see the average homeowner hit with a hefty inheritance tax bill, even when passing the property on to their own children.
Inheritance tax is a controversial tax grab by the government that sees as 40% standard rate of tax applied to the estate of someone who has died.
This 40% tax is only applied to the amount above the threshold of £500,000 if passed to the children or grandchildren of the deceased, while no tax is owed if the estate is passed to a spouse, civil partner, charity or community amateur sports club. However, if it is passed to someone that doesn’t fall within any of these categories, tax is charged on anything above the threshold of £325,000.
We analysed current property values across the UK to reveal where homeowners could be hit the hardest by inheritance tax. The good news is that as many as 216 local authorities are home to an average house price that falls below the £325,000 threshold, meaning that whoever they leave their home to, no inheritance tax will be due.
Of course, it’s important to remember that the estate of the deceased also includes any money and possessions left behind, which when coupled with the value of their home, could push the value of their estate over the £325,000 threshold.
Our analysis also shows that as many as 144 local authorities are already home to an average house price that sits between the £325,000 and £500,000 price thresholds. Meaning that in order to avoid an inheritance tax bill, homeowners must leave their property to their children or grandchildren, if not opting for a party that falls under the exemption guidelines such as a spouse.
The bad news?
We found that in the current market, there are no less than 35 local authorities that boast an average property price over the £500,000 threshold. This means that even when opting to leave their home to their children or grandchildren, a hefty inheritance tax bill will need to be paid.
The worst of the bunch is Kensington and Chelsea, where based on the current average house price of £1.34m, the average inheritance tax bill on bricks and mortar alone would come to £337,868.
London’s more expensive boroughs account for the top seven potential highest inheritance tax bills based on property values alone, with Elmbridge sitting top outside of the capital where the average inheritance tax bill would come in at £71,312.
St Albans (£35,463), Three Rivers (£31,919), Waverly (£26,223), Mole Valley (£25,233), Windsor and Maidenhead (£23,573), Guildford (£20,642), Epsom and Ewell (£20,160), Sevenoaks (£11,118), Hertsmere (£10,441), Cambridge (£8,080), Tandridge (£7,593) South Oxfordshire (£6,231), Wokingham (£1,212) and Winchester (£839) also rank as the areas outside of London where high house prices would result in inheritance tax bills even when leaving a property to a child or grandchild.