Do you know what the inheritance tax threshold is?

As part of a recent study, Saga Investment Services asked more than 1,000 people over the age of 50 that very question. 

Only 10% of respondents knew the correct answer. 21% thought it was higher, 19% said it was lower and 50% just admitted they had no idea. 

The answer is £325,000 but you knew that, right? 

It’s significant because inheritance tax has to be paid if a person’s estate is worth more than £325,000 when they die.

Your estate is the total value of your property, money and possessions, although sometimes the property alone is enough to take you over the inheritance tax threshold. 

Inheritance tax has potentially become an issue for many more people

Gareth Shaw, head of consumer affairs, Saga
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In fact, Saga’s research shows that the number of properties in England and Wales sold at prices above the £325,000 threshold has doubled over the past six years – from 13% in 2009 to almost a quarter (24%) last year.

After analysing property sales data released by the Land Registry, Saga found that despite the total number of property sales decreasing by 3.7% between 2014 and 2015, sales exceeding £325,000 rose by 11.4% over the same period.

All of the top postcodes for properties sold above the inheritance tax threshold are in London. Image by mikecphoto/Shutterstock.com

Unsurprisingly, the top 10 postcode areas for properties sold above the inheritance tax threshold are all in London.

In the East Central postcode, which covers most of the City of London, parts of Islington, Camden, Hackney, Tower Hamlets and parts of Westminster, a whopping 94% of properties sold in 2015 went for more than £325,000.

This compares to 74% in 2009, when the current threshold was introduced.

It's a similar story across the rest of the UK, where the number of property sales over £325,000 has doubled in 28% of postcode areas over the past six months.

Gareth Shaw, head of consumer affairs at Saga, said: “When the initial nil-rate band was set at £325,000 in 2009, just over one in 10 properties were sold above the threshold.

“Soaring property prices have driven this far, far higher over the intervening six years, meaning inheritance tax has potentially become an issue for many more people.” 

Mr Shaw said changes to inheritance tax rules, which include an additional allowance for people passing on a residence to a direct descendant, will benefit many who’ve build up large estates thanks to the value of their home. 

“These may not necessarily be wealthy people, but those who live in a property hotspot,” he said.

“Our research suggests widespread confusion – 42% of over 50s don’t know whether their property is worth more than the inheritance tax allowance, and only 4% have taken any action to reduce the value of their estate for tax purposes.”