The Multiplication Game : ‘Accidental Landlords’ and Inheritance Tax Receipts


Sharon Collier

An experienced Chartered Tax Adviser and Trust and Estate Practitioner, Sharon joined ETC Tax in September 2016.

Accidental landlords and Inheritance Tax

Among the vast array of different types of taxation, there are few which tend to stir such strong emotions as Inheritance Tax.

Those who object to its very existence reckon that the tax is unfair. Individuals, they say, who are most likely to have estates worth above the limit of the so-called ‘Nil Rate Band’ of £325,000 at which Inheritance Tax becomes due will probably have been paying various types of taxes during the course of their working lives.

Not surprisingly, Inheritance Tax is one of the levies which become a regular topic for debate during election campaigns.

Shortly before parliament was dissolved an additional Residence Nil Rate Band (RNRB) of £100,000 on top of the current allowance came into effect. The measure had been announced in 2015 by the then Chancellor George Osborne to provide households with greater flexibility.

With further increases in the pipeline, it means that, by 2020, couples will be able to pass on joint estates worth £1 million without being subject to Inheritance Tax.

The moves are partially in response to the impact on Inheritance Taxreceipts of rising property prices.

New official figures have revealed that the amount of Inheritance Tax paid to the Treasury in the last year reached a record high of £5.1 billion. See coverage in The Telegraph

However, myself and my colleagues at Enterprise Tax Consultants have undertaken some further analysis of the data and found that the amount of Inheritance Tax claimed by the Treasury more than doubled over the course of the last seven years alone.

Even allowing for the effect which the recession of late 2008 and the following year had on the size of the nation’s estates, Inheritance Tax’s value to the economy grew by 200 per cent since the start of this fresh tranche of data in 1998.

Over the same period, house prices have risen to their current average of £234,000 and, even with the new Residence Nil Rate Band, many more families may well find themselves having to pay Inheritance Tax not as a result of Stock Market dealings or lottery jackpots but how much their home is worth.

However, I believe that there is another factor at play here and that is the boom in ‘buy-to-let’ properties. Figures published recently by the Office for National Statistics (ONS) indicate that six per cent of households now receive rental income from other rented properties – three times the figure in the 1980s.

Such is the popularity in the market that even those people who might be described as ‘accidental landlords’ have inadvertently tipped over into Inheritance Tax territory. They may have retained their first home as they moved up the property ladder and possibly inherited another house, deciding to rent them out rather than sell.

Owning multiple homes and receiving the benefits of letting them out means that the negative Inheritance Tax consequences of spiralling house prices are multiplied.

Whilst the new Residence Nil Rate Band (RNRB) might have seemed something of a boon, the rate at which properties continue to accrue in value could soon erode that room for manoeuvre, making the dreaded ‘death tax’ applicable to an even greater proportion of the population.

If you or your clients would like to discuss inheritance tax or property tax matters please contact us.


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