One in four properties sold in 2015 above inheritance tax limit finds Saga Investment Services

Wednesday 6 April 2016

• Properties sold for more than £325,000 have doubled since 2009 • 94% of properties sold in East Central London are over the inheritance tax ‘nil-rate band • Just one in 10 individuals can correctly identify the IHT threshold for a single person, and a mere 4% for married couples and civil partners • New ‘main residence’ allowance, introduced in April 2017, will benefit homeowners

One in four properties sold in 2015 above inheritance tax limit, finds Saga Investment Services

The number of properties sold at prices above the £325,000 Inheritance Tax (IHT) ‘nil rate band’ in England and Wales have doubled over the past six years, research from Saga Investment Services has found1 – from 13% of properties back in 2009 to 24% in 2015.

Saga Investment Services analysed2 six years’ worth of property sales data published by the Land Registry and, despite the number of property sales in 2015 decreasing by 3.7% compared to 2014, sales exceeding £325,000 have soared by 11.4% over the same period.

This comes as new research shows widespread confusion about the IHT nil-rate band. Saga quizzed more than 1,000 over 50s3 and asked them to identify the IHT threshold for a single person. Just one in 10 (10%) correctly said £325,000 – 21% thought it was higher and 19% said it was lower, while half (50%) didn’t know.

Looking across 105 postcode areas, central London and the surrounding areas predictably dominate the top 10 areas for properties sold above the £325,000 threshold. Almost 94% of properties were sold for over £325,000 in the East Central postcode (covering most of the City of London, parts of Islington, Camden, Hackney, Tower Hamlets and some parts of Westminster), compared to 74% in 2009, when the current threshold was introduced. This area is followed by West London (90% of properties sold), South West London (88%), West End (WC postcode, 86%) and North West London (83%).

Top 10 postcode areas for £325k+ properties in 2015 

Postcode   area  Proportion of properties sold above £325,000 
East Central London (EC)  94% 
 West London (W)  90%
 South West London (SW)  88%
 West End London (WC)  86%
North West London (NW)   83%
 North London (N)  76%
 Kingston upon Thames (KT)  73%
Harrow (HA)   68%
 East London (E)  65%
 Twickenham (TW)  64%

But outside of central London, the proportion of properties sold above £325,000 has also been rising sharply. Some 28% of postcode areas have seen the number of property sales exceeding the IHT threshold double in the past six years, including Brighton, Bromley, Bristol, Cambridge, Colchester, Croydon, Durham, Northampton, Norwich, Portsmouth, Stevenage, Tweed, Uxbridge and Watford. The full results for each postcode area is available on request.

For married couples and civil partners, any unused IHT allowance can be passed on to the surviving partner, meaning the total that can currently be handed over without a potential tax bill could be £650,000. Across England and Wales, the number of properties sold above this level has doubled since 2009, from 2.4% to 5.5%. There are 17 postcode areas in which one in every 10 properties sold in 2015 exceeded £650,000, compared to seven in 2009.

In 2015, 60% of all properties sold in the EC postcode area exceeded £650,000, up from 14% in 2009, while 56% of property sales in West End, 53% in West London and 44% of sales in South West London. Just 4% of over 50s living in London correctly identified the IHT threshold for married couples and civil partners – almost one in five (17%) believed there was currently no maximum, while 20% thought the threshold was lower.

New ‘main residence’ nil-rate band
On 6 April 2017, a new IHT allowance will be introduced for people passing on their main home to a direct descendant4. This will rise each year, from:

• £100,000 in 2017 to 2018
• £125,000 in 2018 to 2019
• £150,000 in 2019 to 2020
• £175,000 in 2020 to 2021

This means married couples and civil partners can pass on a possible £1m to their family by 2020. It will then rise with inflation, measured by the consumer prices index, from 2021 onwards.

If someone downsizes their home, they will still be able to pass on assets to the equivalent value of their current home to direct descendants. However, estates exceeding £2m will see the additional nil-rate band withdrawn, tapered at a rate of £1 for every £2 their estate is above this amount.

Commenting on the findings, Gareth Shaw, head of consumer affairs at Saga Investment services, said:

“When the initial nil-rate band was set at £325,000 in 2009, just over one in 10 properties were sold above the threshold. Soaring property prices has driven this far, far higher over the intervening six years, meaning IHT has potentially become an issue for many more people.

“In this context, the changes to the IHT rules – something Saga had long campaigned for - will benefit many who’ve built up larger estates thanks to the value of their home. These may not necessarily be wealthy people, but those who live in a property hotspot.

“Our research suggests widespread confusion about IHT – 42% of over 50s don’t know whether their property is worth more than the IHT allowance, and only 4% have taken any action to reduce the value of their estate for IHT purposes. For those that think they may have an IHT liability, professional help from a qualified financial planner should be considered.”

ENDS


Notes to editors
1. EC postcode area, which covers the City of London, parts of Islington, parts of Tower Hamlets, parts of Camden, parts of Hackney and parts of Westminster.
2. Saga Investment Services analysed property sales data published the Land Registry between 2009 and 2015 across 105 postcode areas in England and Wales.
3. Populus, on behalf of Saga, based on a representative sample of 2,091 people, including 1,006 over 50s, carried out between 18 and 20 March 2015. Populus is a member of the British Polling Council and abides by its rules. 
4. The Government defines a direct descendant as a child (including a step-child, adopted child or foster child) of the deceased and their lineal descendants.

About Saga Investment Services

Saga Investment Services has been developed to open up the world of investing and financial planning to the UK’s over 50s in the run up to and throughout retirement, and to make the process as simple and stress-free as possible. Customers can invest from just £100, and have access to investment advice and financial planning services. Saga Investment Services champions a straight forward and transparent approach to investing, and is a proud member of the Plain English Campaign. It is a joint venture between Saga, the leading provider of services to the nation’s over 50s, and Tilney Bestinvest, the expert investment and financial planning group.

IMPORTANT INFORMATION
The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested.

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