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Property sales surpassing IHT limit hits record high

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More than one in four properties sold in England and Wales so far in 2016 were above the £325,000 inheritance tax (IHT) ‘nil-rate band’, which is a record high according to Saga Investment Services.

According to Saga in 2015 some 24% of properties sold exceeded the £325k mark, an increase from the 13% in 2009 when the nil-rate band was first introduced. However in the first seven months of 2016, property sales data from the Land Registry reveal this figure has jumped to 26% – which is more than one in four properties.

The biggest areas of growth were in London, with four out of every five houses in central London (82%) exceeding the limit, up from 76% in 2015. Meanwhile two thirds of properties in outer London were sold for more than £325,000 in first seven months of the year, up from 55% in 2015.

There was also a small rise in the proportion of houses sold for more than £650,000, which is the maximum amount that can be passed on by someone who inherits any unused IHT allowance from their spouse or civil partner. So far in 2016, 5.8% of property sales exceeded £625k, up from 5.4% in 2015 and more than double the 2.4% in 2009.

Saga’s findings come six months before the government introduces a new IHT allowance for people passing on their main home to a direct descendant. From next year an individual can pass on £425,000 to their heirs, if it includes their main residence, meaning a married couple or civil partnership could pass on as much as £850,000.

This new allowance will rise by £25,000 each year until it reaches £175,000 in 2020, when a potential £1m could be passed on.

“The latest figures suggest that 2016 will be a record year for property sales exceeding the IHT nil-rate band. And with more people dragged into the IHT net simply because their property has risen in value, the tax is no longer just an issue for the wealthy,” said Gareth Shaw, head of consumer affairs at Saga Investment Services.

He added: “The main residence allowance will give this group of people in a property hotspot some welcome relief, but the rule will introduce more complexity to the already-confusing UK tax landscape. For anyone who believes their estate may be subject to IHT, early action with a professional financial planner will be a valuable investment.”