Inheritance tax reform is on the agenda but for property owners, it’s just the tip of the iceberg
Market Financial Solutions
Multi-award winning specialist lender, offering bridging loans and BTL mortgages.
A fresh campaign to scrap inheritance tax (IHT) has emerged in the national press. Backed by nonother than Liz Truss, along with 50 other Tory MPs, the campaign aims to urge the government to do away with the widely despised levy.
Often referred to as the death tax, the proportion of homes liable to pay the levy has more than doubled since 2010. While IHT is certainly an emotive tax, especially for homeowners, it may not be the most pressing tax to target. When factoring in the entire population, IHT is rarely applicable.
Generally, IHT is a tax on the estate – property, money, possessions etc – of someone who has died. There are various thresholds and exemptions in place, but the rules can be complicated, often requiring expert advice to fully understand.?
But, despite fears around IHT, only 3.76% of UK deaths resulted in an IHT charge in 2019/2020, according to recent HMRC data.
Still, with IHT thresholds frozen until 2028, and house prices continuing to rise, more people are paying the tax. Over ￡7bn was paid in IHT in 2022/23, the highest amount ever recorded.
We’ve rarely paid as much tax as we’re paying now
With how much tax we’re all paying, it’s understandable that homeowners may jump on any opportunity to push for a reduction. Even for a tax which isn’t particularly widespread.
Across everything we pay to the state, the UK’s tax burden is sitting around its highest point since the Second World War. The pandemic and economic fallout hasn’t helped the situation.
Drastic measures have had to be taken to try and get control of the public’s finances. Rishi Sunak hopes to introduce tax cuts before the next general election but in the meantime, Brits will have to grin and bear the burden.
A burden which may only rise from here, at least over the short term. Over 6 million extra Brits may be caught out by the higher income tax rate over the next few years.
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Millions of households in England are now spending an extra 5% or more on their council tax bills due to local authority hikes.?Stamp duty receipts for April 2022 to March 2023 hit ￡19.3bn, an increase of ￡700mn when compared the year prior.
In fact, overall property taxes are leading the way as the most prominent fiscal burden on landlords and others, according to analysis of recent tax receipts data. Given all this, it’s no wonder the majority of property investors want to see an overhaul of the tax system.
What tax changes do we want to see?
As part of our latest research, we surveyed 2,000 UK adults, consisting of 1,323 homeowners, 70 participants who owned multiple properties, but who didn’t rent them out, along with 163 landlords. We wanted to understand how those in our market viewed the government’s handling of the property market, and what policy changes they’d like to see introduced.
The results showed tax reform ranked highly among respondents. Across all the groups, 67% revealed they wanted to see controls on, or higher taxes levied, on holiday-lets or second homes in tourist hotspots. Also:
Regionally, property owners in Northern Ireland (71%) and Wales (72%) saw among the highest majority of respondents who wanted IHT scrapped on properties passed on after death.
This isn’t surprising, considering Wales and Northern Ireland saw the biggest house price rises in the UK over the past 12 months or so – increasing by 4.8% and 5% respectively.
It remains to be seen if the campaign to abolish IHT will be successful. Although, so far, there hasn’t been much evidence that the government is planning on adopting any new inheritance policy.
Looking ahead though, it’s likely that tax reform at large will be on the agenda. For many property investors, it needs to be.?