Inheritance Tax Update: Impact on Housing Market

Recently there has been a surge in Inheritance Tax (IHT) receipts. HM Revenue and Customs (HMRC) reported a record £7.5 billion collected in the year to March, a significant increase from the previous year.

However, a concerning trend has emerged regarding the potential impact of IHT on the housing market. Lenders are reporting that older homeowners are hesitant to downsize from their properties due to the fear of losing Inheritance Tax relief associated with their primary residence. This reluctance to move creates a logjam, limiting the availability of suitable properties for first-time buyers.

The current system offers a ‘residence nil-rate band’, also known as the family home allowance. This provides individuals with a £175,000 tax-free threshold when passing their main residence to direct descendants, on top of the standard £325,000 allowance. Married couples can combine these allowances, effectively shielding up to £1 million of their estate from IHT.

While this benefit exists, many families still face potential tax liabilities. It’s important to remember that there are various strategies available to help clients minimise their IHT burden.