Warning of big bills for families due inheritance from baby boomer generation | Personal Finance | Finance

Families inheriting homes from the property rich baby boomer generation face taking on massive loans to cover inheritance bills, it is claimed.

Delays in granting probate on the estates of the deceased means people face demands to pay inheritance tax (IHT) before they receive any cash from a property sale.

Industry experts believe people inheriting in these circumstances will be forced into a ‘fire sale’ of the property, perhaps settling for a lower price, in order to raise the cash to pay the inheritance bill.

Chris Rudden, of investment platform Moneyfarm, said: “The average 35-44 year old has less than £7,000 in savings and they’re the first generation that’s poorer than the one before.

“Property prices are generally very high now, particularly in the south, where there are 600,000 properties over £1m.”

He warned: “If you’ve suddenly got £100,000 IHT to pay and only £20,000 in the bank, it’s not going to get you very far.

“Many, many estates will have one of these properties, possibly even two, and would be way above the threshold with other assets.

“A lot of the next generation don’t have the money sitting around to pay the tax, so they may have to sell the assets they’re inheriting.”

He told the Telegraph: “That will negatively affect house prices, both for those selling and those not.

“We saw in 2008 and 2009 what falling house prices can do, particularly in the US. Either the Government will change the policy on IHT, or people may have to foot the bill for something they can’t afford.

“We could be looking at a property fire sale and the next generation is sleepwalking right into it.”

It is estimated that baby boomers will pass on £1.2 trillion in inheritance over the next few decades.

It can run into hundreds of thousands of pounds and must be paid within six months of death. Unless the deceased left enough behind in savings, their cash-poor descendants could be unable to afford their own inheritance.

Experts believe this could lead to a flood of homes hitting the market, as the next generation is forced to sell the family silver and take “punitive” loans to pay huge tax bills they were completely unprepared for.

Everyone gets an allowance of £325,000 before anything is due, with the possibility of another £175,000, known as the nil-rate band, if you are bequeathing a property to your children or grandchildren.

There’s nothing to pay on what you leave to a spouse or civil partner and, even if you’re widowed when you die, your late partner’s allowance can still be used. This means many estates can be worth £1m before IHT is due, although they start losing allowance if they’re valued over £2m.

However, 40 percent of anything you inherit above your allowances must go straight to the taxman. Neither allowance has increased since 2020 and they’re both frozen until at least 2028.

As a result, HMRC is already reporting that families handed over a record £7.5bn in IHT last year – an increase of £400m – and forecasts suggest it could rise another £2bn before 2030.

Harry Bell, of wealth managers Charles Stanley, said: “Being an executor is not an easy job and it’s very stressful. Often, they’re the children of the deceased, so they’re already in a fragile and difficult position and are constantly reminded they’ve lost a loved one.

“To add insult to injury, the IHT bill has to be paid within six months and probate usually takes longer than this.

“This often means money must be borrowed at punitive rates to cover the bill. If there isn’t enough cash in the estate, investments and property will have to be sold to cover the bill.

“This can be a long process, all while the funds borrowed are accruing more punitive interest.”

Mr Bell said: “Some people assume that just ‘rich’ people pay estate duties, however this simply isn’t the case. It’s often very normal people who’ve had a house that has appreciated in value and some sensible investments.

“If the value of your property and investments are increasing above the threshold, your IHT position is getting worse every year. For every single pound that your estate grows, 40p of that is going to the tax man, effectively punishing your children or beneficiaries for your success and the growth of your estate.

“There’s potentially a very nasty surprise waiting for executors and beneficiaries, who are often the children of the deceased. It is a time bomb.”

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