Six times as many Birmingham homes could be burdened by inheritance tax freeze - expert

A house bought in Birmingham in 2022 is six times more likely to result in families being hit by inheritance tax than in 2009, when the levy was first frozen at £325,000 - research by law firm Shakespeare Martineau has revealed.

Analysis of the Land Registry's price paid data shows that in 2009, 3 per cent of all property purchases (284 out of 8,663) in Birmingham cost £325,000 or more. However, in 2022, this rose to 18 per cent (2,216 out of 12,351).

Over the past 12 years, the West Midlands experienced the fifth largest growth out of all the regions in England and Wales. In 2022, 25 per cent of properties sold in the region cost £325,000 or more compared with 7 per cent in 2009.

With 80 per cent of people saying they have not thought about making lifetime gifts to reduce their inheritance tax liabilities and more than 1 in 5 people (21 per cent) saying they do not ever expect to consider estate planning, according to a survey of 1,000 people by Shakespeare Martineau, more families could find themselves being burdened by inheritance tax.

Lesley Davis, private client partner at Shakespeare Martineau, said: “The tax-free allowance has been frozen at its current rate for more than a decade, where it will remain until at least 2026 despite increasing house prices and inflation - bringing more families into the net.

“As our survey shows, many people do not believe they will ever have to consider estate planning. However, rising house prices are swelling estate values and more properties are edging towards the £325,000 allowance - before possessions and money are even taken into account.

“The standard inheritance tax rate is 40 per cent, which can eat into what is left behind, leaving families facing an unexpected and, potentially, large bill.”

Inheritance tax is paid if a person's estate - including their property, money and possessions - is worth more than £325,000 when they die. The rate of inheritance tax is 40 per cent on anything above the threshold. In the latest financial year (2022-23), inheritance taxes raised a record £7.1 billion for the Treasury - £1 billion more than the previous year (2021-22).

If the main home is being left to children or other direct descendants such as grandchildren, people can take advantage of the residence nil-rate band, introduced in 2017, which will increase the threshold by £175,000 - taking the tax-free allowance to £500,000.

However, the number of properties that were purchased for £500,000 or more in Birmingham in 2022 also increased dramatically when compared with 2009 (5 per cent versus 1 per cent), according to the Land Registry's price paid data.

Shakespeare Martineau's research also found that despite almost half of people (46 per cent) expecting to receive inheritance when a loved one dies, only a third (34 per cent) have discussed the subject with their parents.

With 1 in 5 people (21 per cent) saying they are relying on an inheritance to supplement themselves financially in the future, rising estate values could see an influx of people contesting their loved ones' wills, according to Lime Solicitors - leading to costly and upsetting inheritance disputes.