New research from Yopa, reveals that a significant number of homebuyers across the UK are now automatically liable for inheritance tax due to soaring property prices. This increase comes despite a rise in inheritance tax thresholds over the past 20 years, highlighting the growing financial burden on landlords and homeowners.
20-Year surge in property prices triggers inheritance tax liability
Twenty years ago, only 4% of local authorities in the UK had average house prices that would subject homebuyers to inheritance tax. At that time, the threshold stood at £263,000. However, since then, the average UK house price has surged by 88%, with 36% of local authorities now seeing average house prices above the current inheritance tax threshold of £325,000.
The analysis by Yopa reveals that HMRC collected £2.9 billion in inheritance tax during the 2004-2005 financial year. In contrast, current figures show that HMRC now collects £7.5 billion annually, a staggering 157% increase over the past two decades.
Limited relief from increased thresholds
Despite the increase in the inheritance tax threshold to £325,000, the rise in property prices means many more homeowners are now liable for the tax. Yopa’s analysis shows that in the current market, if a home is left to children or grandchildren, the threshold increases to £500,000, exempting 92% of local authorities based on the current average house price. However, with property values continuing to rise, many homeowners may still find themselves facing inheritance tax liabilities.
Potential changes on the horizon
Labour’s upcoming Autumn Budget, set for 30th October, is widely expected to include changes to inheritance tax rules. Steve Anderson, National Franchise Director at Yopa, commented, “The government has benefited not just from stamp duty land tax but also from inheritance tax, which has climbed in line with rising property values. As we approach a Budget that’s expected to be ‘painful’ for many UK taxpayers, we may see further increases in inheritance tax liabilities.”
While the Labour manifesto has focused on ending the use of offshore trusts to avoid inheritance tax, Anderson warns that any changes could require significant legislative rewrites, leaving landlords and homeowners uncertain about their future tax obligations.
