Islington and Hackney Homeowners: How Rising Property Values Are Creating an Inheritance Tax Problem

Islington and Hackney have undergone a remarkable transformation over the past twenty years. What were once affordable inner-city areas are now among London's most desirable postcodes, with average property values in parts of N1 and E8 regularly exceeding £800,000 to £1.2m or more.

For many families who bought in these areas years ago, this rise in property values is welcome — but it has also created a significant and often unexpected Inheritance Tax (IHT) problem. Estates that would once have comfortably fallen within the nil-rate band now carry substantial IHT liabilities.

Understanding the IHT Exposure

The IHT nil-rate band has been frozen at £325,000 since 2009 and is set to remain frozen until at least 2030. For a single person with an Islington property worth £1.2m and modest savings, the taxable estate could easily be £800,000 or more — generating an IHT bill of around £320,000.

For married couples or civil partners, the combined nil-rate bands (£650,000) and the Residence Nil-Rate Band (up to £350,000 combined, where the property passes to direct descendants) can reduce the exposure — but even with these allowances, many North and East London families face meaningful IHT liabilities.

Key IHT Planning Strategies

Making Use of Gifting Allowances

The most straightforward IHT planning tool available to everyone is the annual gifting allowance of £3,000 per person. Gifts made more than seven years before death are fully exempt from IHT under the Potentially Exempt Transfer (PET) rules. Starting a structured gifting programme early — even at modest levels — can significantly reduce the taxable estate over time.

The Residence Nil-Rate Band (RNRB)

Where the family home passes to direct descendants (children or grandchildren), the RNRB provides an additional allowance of up to £175,000 per person. For couples, this means up to £350,000 of additional IHT-free value — but only where the property is left to qualifying descendants and the estate is not above the taper threshold of £2m.

Trusts

For families who want to provide for their children or grandchildren while managing IHT exposure, discretionary trusts can be an effective planning tool. Placing assets in trust removes them from the estate (subject to the seven-year rule) while allowing the trustees to exercise discretion over how and when assets are distributed.

Pension Planning

Proposed changes from April 2027 will bring defined contribution pension funds within the scope of IHT in most cases. For Islington and Hackney residents with significant pension pots, reviewing how pension assets interact with the broader estate plan is now an urgent priority.

Life Insurance in Trust

Where an IHT liability cannot be eliminated entirely, a whole-of-life policy written in trust can provide a tax-free lump sum on death to cover the liability — avoiding the need to sell the family home or other assets to meet the HMRC bill.

Why Act Now?

The government's decision to freeze IHT thresholds until 2030, combined with ongoing property price growth in inner London, means that the IHT challenge for Islington and Hackney families will only intensify over time. Early planning — before values rise further and before health issues arise — is always more effective and more tax-efficient than planning done under pressure.

Newshams Tax Advisers works with families across Islington, Hackney, Stoke Newington, Dalston and the wider North and East London area on IHT planning. Our approach is practical, plain-speaking and based on a thorough understanding of each family's specific circumstances.

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If you would like to discuss your IHT position with Newshams Tax Advisers, please get in touch. Initial discussions are informal and entirely without obligation.