Inheritance tax bills rise in Edinburgh as house prices increase

According to new figures published by law firm Boodle Hatfield, Edinburgh residents had the biggest increase in inheritance tax (IHT) bills, with the total paid up 315% to £54 million from 2018 to 2019.

This works out at roughly £212,598 per estate, although some will have paid far more or less. In the year to 2018, £13m was collected in Edinburgh, with an average tax take of £149,425.

Edinburgh has also seen strong house price inflation, with a 5% rise in property prices in 2019 according to Land Registry data.

Bedford in England was another area where IHT takings increased substantially. They soared from £6m in 2017-18 to £11m in 2018-19, even though the number of estates paying IHT increased by only six, from 51 to 57. In Glamorgan, IHT takings increased from £15m to £27mover the same period, and the number of estates went from 108 to 126.

Ownership of a valuable family home can be enough to push an estate into IHT. The tax-free allowance for inheritance has remained at £325,000 since April 2009, and 40% is charged above this amount.

However, some estates may pay nothing if the family home is being passed on direct to descendants, The Times reports.

Under the residence nil rate band, you can pass on an additional £175,000 in value of your main residence, as long as the estate is worth less than £2m. On estates worth more than this, the allowance decreases by £1 for every £2 above £2m of the estate’s worth.

A widow or widower can pass on up to £1m tax-free because spouses inherit their partner’s tax-free £325,000 allowance and £175,000 main residence allowance.

Geoffrey Todd, partner at Boodle Hatfield, said many families had big rises in IHT bills because these thresholds have not risen with house price inflation.

He said: “The government has said the IHT allowance will remain at the current level until 2026, so we should expect this trend to continue over the next few years.”