Avoid Selling the Family Home To Pay Inheritance Tax (IHT)

What happens when your main asset is a large family home or high-value property, and you wish to pass this on to your loved ones tax efficiently instead of selling it to cover an Inheritance Tax bill?

The Nil Rate Band (NRB) is the amount an individual can own without creating an Inheritance Tax liability. This has been frozen since April 2009 at £325,000, meaning that anything over the NRB will be taxed at the current rate of 40% as a general rule, however, there are certain exemptions and complexities to be considered as with most areas of tax planning.

Despite this level remaining in place since 2009, stock markets and housing prices have increased dramatically in comparison, considering that the NRB was frozen directly after the 2008 financial crisis. To put this into context, in 2009 the average UK home was worth circa £155,000 whereas the average property as of April 2023 is worth over £285,000 (Land Registry UK House Price Index, 2023).

This then means that estates are worth more, and therefore many people are now being pushed above that NRB even without having substantial liquid assets, which was the case with clients Mr and Mrs Clarke.

Married couple Mr and Mrs Clarke own a large family home worth £1 million and £400,000 in savings. Their pension income was sufficient for their day-to-day needs along with some additional spending such as a special holiday for their 40^th wedding anniversary. They wished to pass the family home down to their two children upon their death, however, they were concerned that there would be an outstanding Inheritance Tax liability which may need to be paid for by selling the family home.

When they initially contacted us for financial advice, we were able to look more closely at their circumstances and options and we were able to estimate an IHT liability of roughly around £160,000.

When looking at the available solutions, it was clear that they had enough savings to continue to live comfortably with some additional funds left over each month. Therefore, the Clarkes could afford to pay for Whole of Life Cover. We then set this up as a joint policy in trust costing £297.13 per month which they would pay for the rest of their lives.

By doing so, this would then pay out £160,000 upon the second death of either of the couple. This meant that when the time came for an Inheritance Tax bill to be paid, this amount would cover the costs and the family home could still be passed on to their two children.

Whole of Life Cover is a great option for those with less liquid assets, however, individual circumstances must be taken into account as the premiums can be expensive due to the high value of this cover. Therefore, it is important to seek Independent Financial Advice to ensure that you get the protection that is right for you.

If you would like to discuss your estate planning or financial protection options with an Integrity365 Independent Financial Adviser, please do not hesitate to get in touch to arrange a no-obligation first meeting.

Source: Land Registry UK House Price Index, 2023 https://landregistry.data.gov.uk/