Understanding the Shifting Landscape for High-Value Property Owners Over 50
For many homeowners over the age of 50, the conversation around inheritance tax (IHT) often surfaces later than it should. And for those with a property worth £600,000 or more, that conversation is not only relevant, it is essential.
While a £600,000 property might not immediately suggest exceptional wealth in today’s market, particularly in London and the South East, its implications for IHT liability are considerable. More importantly, it signals a need to consider how property wealth interacts with the broader estate, and how early, informed planning can protect value for future generations.
The Threshold Illusion
The UK’s current IHT nil-rate band (NRB) stands at £325,000 per individual, a figure unchanged since 2009. For married couples or civil partners, this doubles to £650,000. However, the residence nil-rate band (RNRB) offers a further £175,000 per individual when a main residence is passed to direct descendants, raising the combined allowance to £1 million for many.
Yet this figure can be misleading.
First, the £1 million threshold only applies where qualifying criteria are met, notably the passing of a main residence to direct descendants. Those without children, or with more complex estate structures, may not benefit fully from the RNRB. Second, estates worth over £2 million begin to lose this allowance, tapering by £1 for every £2 above the threshold. For estates above £2.35 million per individual, the RNRB is lost entirely.
In practical terms, this means a couple owning a £1.2 million home with additional savings, investments, or pensions may find their estate subject to substantial IHT, even if they assumed they were ‘within allowance’.
Property Inflation and Silent Exposure
What makes property such a significant factor in IHT exposure is its relative liquidity. Unlike investment portfolios, property cannot be gradually reduced in size or value without significant transactional consequences. And with house prices having increased dramatically over the past two decades, many individuals now find themselves asset-rich and IHT-exposed, often unintentionally.
A house purchased for £250,000 in the 1990s and now valued at £1 million might feel like a success story, and in many ways it is. But unless it forms part of a broader strategic plan, it may translate into a tax liability of hundreds of thousands of pounds for the next generation.
Strategic Planning Through the Property Lens
IHT is, at its core, a planning tax. And for property owners over 50, this is precisely the window during which meaningful action can be taken. The goal is not necessarily to reduce the value of the estate, but to ensure that value is protected, managed, and passed on intentionally.
Some practical considerations include:
1. Gifting with Awareness
Gifting property outright, or through structured asset transfers, is one approach, but it must be considered carefully. A gift of property may attract a seven-year liability window under the Potentially Exempt Transfer (PET) rules. Additionally, continuing to live in a property that has been gifted, without paying full market rent, can result in it being treated as part of the estate for IHT purposes under the “gift with reservation of benefit” rules.
This is why timing, documentation, and ongoing use of the property all matter. Advice from a qualified tax adviser is essential in these scenarios.
2. Lifetime Mortgages and Equity Release
While often associated with later life borrowing, certain mortgage products, including interest-only lifetime loans, can also play a role in IHT planning by reducing the net value of the estate. Used correctly, such strategies can allow capital to be released for gifting, diversification into more flexible assets, or for pre-paying tax liabilities.
It is crucial, however, to evaluate these options through the lens of long-term cost, legacy impact, and liquidity.
3. Trusts and Property Structures
For clients with multiple properties or more complex family arrangements, the use of trusts may provide a route to IHT efficiency. Property placed within a trust is no longer treated as part of the individual’s estate, subject to certain conditions and caveats, and can allow greater control over how the asset is passed on.
That said, trusts can introduce their own tax charges and should never be entered into without full consideration of the wider estate plan.
4. Downsizing and RNRB Efficiency
Some homeowners may consider downsizing to a lower-value property in later life. Importantly, the residence nil-rate band can still apply if the proceeds from a former main residence are left to direct descendants, even if the property itself no longer qualifies. This is known as the ‘downsizing addition’.
Maximising this relief requires documentation and a clear chain of ownership and intention. Many overlook this opportunity by assuming the relief only applies to the home at the point of death.
Intergenerational Thinking: Beyond Tax
While the mechanics of inheritance tax are numerical, the consequences are emotional and relational. How wealth is passed on often matters as much as the wealth itself. For those over 50, the years leading into retirement represent a natural point of reflection, and opportunity, for shaping the intergenerational impact of their estate.
Many of our clients wish to provide support to children or grandchildren in their lifetimes, whether through education costs, home deposits, or business ventures. By aligning IHT planning with these objectives, it becomes possible to unlock property wealth in ways that bring forward generational benefit.
This is where bespoke advice becomes indispensable.
The Role of Specialist Advice
At Henry Dannell, we work closely with high-net-worth individuals and their advisers to ensure that property wealth is framed within a broader strategy. This often means collaborating with estate planners and tax advisers to ensure that mortgage structuring, equity release, and asset allocation support long-term intentions.
Whether considering borrowing into later life, refinancing to support gifting, or rebalancing assets to optimise thresholds, the value lies not just in the tools available but in the insight applied.