Lack of awareness of inheritance tax rules could leave families hit with huge bill

Seven out of 10 Britons over the age of 50 with a potential inheritance tax (IHT) bill are unaware that the money they want to leave to their beneficiaries could be liable for the tax, reveals a new survey.

deVere Group, one of the world’s largest independent financial advisory, asset management and fintech companies, says since April 2022 that 72% of all new clients aged 50+ and with assets over the IHT threshold that the firm took on did not know that it was £325,000.

The inheritance tax nil-rate band in the 2023/24 tax year is £325,000. This means that no IHT is due on the first £325,000 of your estate when you die, regardless of who you leave it to.

deVere’s survey comes a week after HM Revenue & Customs (HMRC) reported a 24% jump in the number of people paying IHT in the 2022/23 financial year. It is nearly double what it was in the 2018/19 tax year.

Of the findings, CEO of deVere Nigel Green, comments: “It’s very worrying that those with assets that could be raided by IHT had a lack of understanding about what is likely to happen. It puts these people’s families at risk of being hit with an unexpected, and potentially considerable, tax bill at the point of the death of a loved one. 

“It’s even more troublesome as, in our experience, people feel so strong about inheritance tax: it is the most hated of all taxes. People despise the idea of money that they’ve already paid tax on being taxed yet again. 

“It’s a human instinct that they would rather their loved ones benefit from their legacy than it being taken by the government.”

He continues: “The HMRC figures show that more and more families are being pulled into the IHT net. 

“This is largely due to rising property prices and the frozen IHT threshold.

“IHT is very clearly no longer just for the super-wealthy, as it was originally intended.

“It’s hitting a growing number of ordinary families every year whose main asset is their family home.”

However, planning can help mitigate the impact of “the most hated tax.”

Establishing a trust, using gift allowances which allow you to pass on money to loved ones whilst shrinking your estate, holding properties as tenants in common with your spouse, and investments that qualify for relief, are amongst the ways financial advisors can help you pass on more to your loved ones.

Nigel Green concludes: “To mitigate a potential IHT issue, clearly you need to be informed, and planning early with professional advice will be hugely beneficial as it can help you to legitimately avoid leaving your loved ones with huge bills to pay and give them more of your legacy. 

“It must be remembered that IHT is not targeted at only the very wealthy individuals any longer.”

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