The chancellor announced the inheritance tax changes in October (Image: Getty)
Labour's decision to impose a 20% inheritance tax on agricultural assets over ￡1 million has left landowners scrambling to pass their estates on to their children - but acting with haste to avoid the 2025 increase could backfire, an expert has warned.
Land Registry records show that the number of properties being passed down this year is expected to have risen by over 45% to around 220,000.
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The sharp rise on the annual average of 130,000 estates being handed down, according to estate agent Hamptons, comes after Rachel Reeves confirmed the new inheritance tax rules in her October Budget.
The change has received the most vehement response from farmers, who have staged multiple protests in London calling for a reversal of the policy.
But those who own properties with surrounding agricultural land could also be affected.
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Families could also be hoping to dodge extra payments by using the “seven year rule”, which allows people to pass down assets and money over the ￡325,000 band tax-free seven years before their death.
Money and assets handed over three years before death are currently taxed at 40%.
However, Mike Ambery, retirement savings director at Standard Life, has warned landowners against rushing into passing down properties - or gradually giving away money to reduce their overall assets - ahead of the rise.
He said homes can still be subject to inheritance tax if rules are not adhered to strictly - and dodging liabilities by regularly handing over assets could dent pension packages.
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Families are hoping to dodge inheritance tax by quickly handing estates down through the generations (Image: Getty)
He told The Telegraph: “While it’s natural to consider how to minimise inheritance tax liability through strategies like increased gifting, it’s important that people consider their own retirement incomes and remember that pensions need to last for the whole of retirement."
And Andrew Marr, from tax specialists Forbes Dawson, warned those set on handing over their estates to make sure they were covering all their bases.
He said: “To be effective for inheritance tax, the parents really do need to genuinely relinquish the property.
“Anecdotally, I am aware of HMRC suggesting that a property was still within a lady’s estate because her kids still let her tend the cabbage patch in the garden.”
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Fears inheritance tax raid will cost Britain ￡1 billion and 125,000 jobs
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Another reason for the rush on passing down inherited property could be fears over a rise in capital gains tax.
Rates are expected to increase from 10% to 18% for those on lower rates and from 20% to 24% for those on higher rates.
In the face of higher charges for passing over land, property and other assets, Rob Morgan, a wealth management expert from Charles Spencer said: “One of the simplest and most effective strategies available is gifting.”