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Data published recently show that the new £100,000 additional 'private residence' exemption for Inheritance Tax (IHT), which is due to be introduced in April 2017 and will increase thereafter, could not come soon enough for many people.
More than two thirds of properties in outer London which sold in the first seven months of the year exceeded the current £325,000 IHT limit. Where a property is jointly owned between spouses or civil partners, a 'double limit' may be available on the death of the second owner. However, one in 13 properties in London sold in the same period exceeded that limit also.
The big problem which can occur when a property exceeds the IHT limit comes as a result of the rule that the tax has to be paid within six months of death. The likelihood that the IHT will need to be paid before the property is sold may mean that, unless there are other realisable assets, the executors must borrow to pay the tax or make an arrangement with HMRC to pay it in instalments, which also carry interest. There is then a natural inclination to look for a quick sale, which may not be at the best price.
Where a second property or foreign property is owned, the IHT position is likely to be even worse.
If you are concerned about the financial or practical effect that IHT may have for your beneficiaries and/or executor, we can advise you of appropriate measures to take according to your individual circumstances.