Most people have no idea how inheritance tax will impact on the wealth they expect to leave for their families and loved ones.
Only three out of 10 know how much the threshold is for the nil rate band – the amount they can leave without paying IHT, says a new study.
While another 38% believe no IHT is paid on their home when they die.
And as the Chancellor Phillip Hammond orders the Office of Tax Simplification to review IHT rules because they are so complicated, insurance company Canada Life reveals 55% of over 45s with assets of more than £325,000 do not know what rate of IHT they might have to pay.
Rules are too complicated
Many financial experts blame the complexity of IHT rules for the government receiving a record high of £4.84 billion tax take this year.
Worryingly, says the insurance firm, just four in 10 are aware that IHT is paid on pension savings, life insurance policies not held under trust, agricultural land, business assets and non-exempt gifts given away in the past seven years.
Karen Stacey, Head of Distribution Services, at Canada Life said: “There is a disturbing lack of knowledge which will undoubtedly translate into unnecessarily high inheritance tax bills. For many people, their single largest asset is their house – it’s what they have worked their entire life to own and many have benefited from an extraordinary increase in its value.
IHT exempt gifts
“Their hopes for securing their children and beneficiaries’ financial futures rest on being able to pass on as much of its value as possible.”
The study also highlighted fewer than a third (32%) know the annual IHT exemption amount they are entitled to (up to £3,000) – but an additional third (35%) believe they can give away more than £3,000 without a tax charge, bringing the possibility of unexpected bills.
“Unless people learn more about taxes and actively plan the future of their estate, the government is in line for a large, ongoing and often unnecessary windfall. Yet by taking a few simple steps this can often be avoided, ensuring that people’s estates go exactly where they want it to.”
