After considering in the previous articles what are the procedures and consequent taxes to consider when you want to buy a house in London, in this article we have to deal with a topic not very pleasant, but necessary to have a complete overview from an economic, financial and regulatory point of view related to the purchase of real estate in London or in England; the inheritance tax in England.

The Inheritance Tax provides a standard and general rate of 40 % on the NET value of the property subject to inheritance and exceeding £ 325,000.00. Thus :

a) up to £325,000.00 there is no tax chargeable;

b) the rate is applied on the difference in value by imposing £325,000.00 as a subtrahend.

Net Value means the market price at the time of the inheritance less the subtrahend and any security interest, i.e. the mortgage. 

Exceptions :

Inheritance Tax is subject to certain exceptions, which are as follows:

1.Between spouses or civil partners there is no Inheritance Tax liability provided the net value of the property does not exceed £2 million.

2.In passing to children the threshold of non-liability to tax rises to £475,000.00.

Take for example an asset that has a market value of £700,000, the standard rate of 40 % is applied on £225,000.00 or the net value between the market price and the taxable threshold of non-taxability.

This is the case if there is no collateral encumbering the property. Otherwise, as stated above, collateral is also a subtractive element in determining the net value.

In fact, real estate investment aided by the use of leverage can have advantages in terms of taxation and profitability.

Next we will discuss the applicability of gift tax and explain the seven-year rule.

All information regarding the determination and applicability of inheritance tax in England can be checked and accessed at the following website: http://www.gov.uk/inheritance-tax.