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How where you die influences your estate’s tax bill

By Marc

Inheritance tax is on the rise but there is a strong regional bias towards the south of England, government figures show.

Data from HM Revenue and Customs (HMRC) shows in 2016-17, 4.6% of UK deaths resulted in an Inheritance Tax (IHT) charge, increasing by 0.4 percentage points since 2015-16.

IHT receipts received by HMRC during 2018-19 were £5.4 billion, an increase of 3%, and has been steadily rising each year.

Much of this has historically come from London and the South East, accounting for 48% of the total charges across the UK and 55% in England.

The average IHT charge in London was £226,000, according to HMRC, compared with £127,000 in Wales, £131,000 in the North East of England, and £139,000 in the North West of England.

Much of this is due to high house prices that tend to dominate the south of England.

For example, HMRC said the total sum of the value of assets in estates since 2009-10 has increased by around £15billion to £80.1billion in 2016-17. Around 80% of this increase was in residential property.

All estates have a threshold, currently £325,000 for the 2018-19 tax year, before IHT is due and there is usually nothing to pay above that if it is passed to a spouse.

It tends to include assets such as savings, investments and property.

Since 2016/2017, the government has introduced a main residence nil-rate band, which lets descendants of a deceased person inherit a portion of a property value without any IHT liability.

This effectively boosts the IHT threshold and is £150,000 for the 2019-20 tax year and rising to £175,000 in 2020-21.

It will then increase by the value of the consumer price index.

This means in the 2019-20 tax year, your estate could be worth £475,000 before any IHT is due.

If this was passed to a spouse who later died, their estate’s threshold would be worth £950,000 before IHT is due.

The standard IHT tax rate is 40% on anything above the threshold.

Careful IHT planning, wherever you live, can help mitigate this through tools such as gifts or by setting up trusts for certain assets and financial policies.

  • HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen