Plans to remove inheritance tax from family homes could reduce pressure on beneficiaries to sell inherited properties and potentially change the flow of homes coming onto the market.
The potential impact follows Conservative leader Kemi Badenoch’s pledge to exempt family homes passed to children or grandchildren from inheritance tax if the party returns to government.
Under current rules, inheritance tax is generally charged at 40% above the available tax-free thresholds. Estates can benefit from a £325,000 nil-rate band and an additional £175,000 residence nil-rate band when a qualifying home is left to direct descendants.
Unused allowances can be transferred between spouses and civil partners, meaning a qualifying couple can currently pass on as much as £1m without inheritance tax, although the residence allowance is tapered for estates worth more than £2m.
INHERITED HOMES
Elliot Castle, Chief Executive Officer of We Buy Any Home, says removing the tax from family homes could give beneficiaries greater flexibility over whether and when to sell.
He says: “Under the current system, families can also find themselves under pressure to sell an inherited property quickly in order to meet an inheritance tax bill.
“That can mean making a major financial decision at a very difficult time, and potentially selling a property for less than they might have achieved if they had more time to consider their options.
“If the proposed changes remove that pressure, families could have more time to decide what they actually want to do with an inherited home rather than feeling they have to sell it immediately to cover a tax bill.”
PROPERTY SUPPLY
Any change could have implications for both sales and rental supply depending on what beneficiaries decide to do with inherited properties.
Some homes could remain within families for longer rather than immediately coming onto the sales market, while others could potentially be retained as rental investments.
Castle says: “The important point is that people would have more choice. They could keep the property within the family, rent it out or take their time to achieve the right price if they decide to sell, rather than feeling forced into a quick sale.”
He cautions that the proposals are not current government policy and homeowners should not make financial decisions on the basis of the Conservative announcement.
Castle adds: “If the proposals do become law, removing the inheritance tax burden from family homes could give families more flexibility over what happens to one of their most valuable assets.”
