There are so many ridiculous things about our attitude to house prices in Britain that it is hard to know where to start. But I was reminded this week about one of the more irritating. When prices go up, people are thrilled. They are richer through no effort of their own. But no sooner have these unearned and unmonetised riches appeared in their imagination, than an article in the Sunday papers starts freaking them out about the inheritance tax (IHT) that will have to be paid on their estate on their death. And so it was this week.
The IHT take is rising fast it was up 7% in the year to April 2013 and is around 30% higher now than it was in 2010. But while The Daily Telegraph runs with the idea that there is a "death duty threat as housing booms", the rise isn't really about house prices. Instead it's about fiscal drag.
The IHT nil rate is stuck at £325,000 and is expected to stay there until at least 2019. IHT used to be seen as something of a voluntary tax by the rich, but various rule changes have made the networks of trust and avoidance techniques that once kept money firmly inside families rather less effective than they once were.
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However, that doesn't necessarily mean that you have to pay that much of it. Anyone really concerned about IHT can simply sell their house, buy a cheaper one, gift the leftover cash to their children and hope to live for seven years. After all, as there is no capital gains tax on the sale of your own house, this really is one of the few ways left to capture and transfer unearned wealth.
The other much under-used option is to give gifts from surplus income. You can give regular gifts to whoever you like, as long as doing so doesn't reduce your own standard of living. If you can do this (and it is one of the ways the rich stay rich), it is an incredibly effective way to transfer wealth.
Finally, it is worth making sure, as Richard Dyson notes in The Daily Telegraph, that "you don't inherit more yourself". If you find yourself a beneficiary of cash you don't need, then try to use a deed of variation to transfer the bequest to your own heirs without it ever being added to your own estate for tax purposes.
If you can't or won't do any of these things, there is one more way to make IHT feel like less of an attack on your carefully built-up savings. Think of it not as a tax on the estate of the deceased, but as an income tax on the cash disbursed to the heirs. They pay income tax or capital gains tax on everything else that comes their way, and in some senses this is no different. Not that it will feel that way to them.
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