I live and work in a middle class heartland, Farnham in Surrey. It’s a wonderful place to bring up a family or to retire to, and many people (like me) do exactly that.

While it’s an affluent town there’s a diverse community. ‘Ordinary’ people live here, as well as wealthy individuals. Professionals, families, retirees and an annual influx of art students to UCA (University for the Creative Arts), are all attracted to this area with its outstanding schools, great facilities and a range of housing stock. There are large properties for those high net-worth individuals, as well as detached and semi-detached family homes, townhouses, flats and aspirational retirement accommodation.

However Farnham, like many other towns in the South East, has a growing problem. Its middle class residents have been firmly pushed into the inheritance tax net, in part because of property prices.

Are You Above The Inheritance Tax Threshold?

Many people who may never have thought they would be liable for inheritance tax, are now above the threshold. The average house in Farnham costs £588,492*, that’s well above the Main Residence Nil-Rate Band for an individual of £ £450k. Put simply, if you own the average house in this town and die without planning for inheritance tax, £138,492 of your property value will be taxed at 40%. If your family and friends were expecting to inherit that wealth, they will be out of pocket by £55,396!

Of course, we don’t all live by ourselves in average houses. If you’re a couple, the Main Residence NRB is £900k, so you get a little more protection. But if your property is worth more, and you have wealth in investments, cash and other assets, you may find you have very little protection in place.

From this year, those with wealth above £2.2 million, and those without children (lineal descendants), have no inheritance tax protection. The Main Residence NRB ‘taper’ this year 2018/19, means that anyone with an estate valued at £2.25 million and above lose the Main Res NRB. This is applicable on the first death, so if you’re a couple with a joint estate that exceeds £2.25 million, the taper applies.

£2.2 million may not sound like a very middle class problem, but it could be. Many mature people in this area have seen their property values increase exponentially over time. If you’ve lived in the same family house for 20-30 years, the value your property combined with any savings and investments you may have, could quite feasibly result in a significant estate.

Most of us would like to pass this wealth on to our friends and family. So if you’ve not done the sums to see how much your estate is worth, and therefore how much the taxman is planning to take, it’s time to do so!

Inheritance Tax Planning

It’s not all doom and gloom. If having done the sums you find that your wealth (excluding pensions) is in excess of £425,000, or £900,000 for couples, you can benefit from inheritance tax planning measures.

There are simple things you can do, such as gifting excess cash or putting your ISA outside of your estate using Business Property Relief (if you have your own business). Even ensuring you have an up-to-date Will can help reduce your inheritance tax burden.

Don’t worry if this all sounds complicated. While inheritance tax planning can be complex, there are plenty of solutions to help you reduce the tax burden. The first step is to understand how inheritance tax applies to you and your wealth / estate.

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