250,000 of London’s pensioners face death duties on family home
An unprecedented number of pensioners are set to pass on crippling inheritance tax bills to their beneficiaries as a result of the continuing property boom in London.
Research from national law firm Clarke Willmott LLP shows that around 485,000 of London’s properties are owned and occupied by pensioners. Meanwhile, according to Nationwide, average house prices have gone beyond £362,000 in the capital, indicating that more than half of London’s owner-occupier pensioners will be over the £325,000 inheritance tax threshold based on the value of their property alone.
Andy Kirby of Clarke Willmott explains:
“Most pensioners will certainly not think of themselves as rich and may not have considered the significant inheritance tax their beneficiaries will face in future.”
“With rents as well as house prices very high, there is a growing trend for children to live at home well into adulthood. Parents of these children may believe they are leaving a roof over their heads when they pass on, but the reality is that they may be forced to sell the family home simply to release the funds needed to pay inheritance tax.”
But it’s not all doom and gloom as Andy points out:
“Property price increases shouldn’t be viewed negatively – essentially they are increasing your wealth, and that is a good thing. But with that comes the responsibility for wealth management – and older people in particular should consider seeking legal advice because some widely used practices have hidden traps.”
“For example, gifts of the family home are beset with difficulties and, in particular, the inheritance tax reservation of benefit rules mean that if a gift of a home is made to children not in occupation, and the parent continues to live in the house without paying his or her children a full market rental, then the parent will be regarded as retaining a benefit from the gift and inheritance tax will still be due.”
“If, however, all the outgoings are shared in proportion to ownership, gifts to resident adult children do not fall foul of the inheritance tax reservation of benefit rules and will be tax free if the donor parent survives for seven years. Care also needs to be taken if the child unexpectedly moves out as the reservation of benefit rules will then apply unless the parent pays rent.”