According to research by Canada Life two thirds of adults, over the age of 45, with assets exceeding £325,000 did not know the threshold for the standard nil rate band (£325,000) and so were not aware that their estates may be liable for an inheritance tax (IHT) bill.
In addition, over 50 per cent of those surveyed did not know the rate at which assets beyond the nil rate band would be taxed and only 40 per cent were aware of which items would be liable for IHT, as part of the estate, upon death.
This level of confusion reflects the complexity of, not only IHT, but the whole of the UK tax system.
With limited knowledge and, seemingly, a lack of awareness many families will undoubtedly find themselves facing unexpectedly and unnecessarily high tax bills.
Testament to this are the latest figures available from HMRC, which show that receipts from IHT have hit a record high. In the tax year 2016/17, it received around £4.84bn in IHT – almost double its take in 2009/10 of £2.4bn.
Last month, the Chancellor Phillip Hammond acknowledged that ‘Inheritance Tax, and the system within which it operates, is particularly complex’ and requested that the Office for Tax Simplification (OTS) carry out a review of the current regime.
The review will focus on technical and administrative issues such as submitting returns and paying tax owed, as well as more practical issues such as estate planning.
The OTS are also likely to consider the rules surrounding gifts and how these interact with the wider IHT system.
Tax Partner, Phil Blackburn, said: “Put simply, no one wants to find themselves paying more tax than they need to, yet many are because they don’t fully understand the rules that they are required to abide by.”
“Understanding your tax liabilities means knowing with certainty what they are and how you can fulfil them, but it also means knowing when to call them into question if you think something is wrong.”
“Clearly the confusion and absence of awareness is not all the fault of the individual and is only exacerbated by the overly complex tax system we have here in the UK. Hammond’s request for a review of the regime is a perfect opportunity to identify the various sticking points in the system and remedy these.”
“However, individuals and families can still take steps to better protect their assets; understanding taxes, specifically those that you are liable to pay, as well as taking an active role in tax planning can be key to keeping on top of your affairs and ensuring you don’t overpay or underpay.”
“If you’re struggling to get to grips with your liabilities and are concerned about the future of your estate and assets we would urge you to seek professional advice at the earliest opportunity.”
Here at George Hay, we share your concerns about paying Inheritance Tax and the complexities that accompany the regime. That’s why our team of professionals use their experience, combined with knowledge of your circumstances, to minimise your liabilities compliantly by way of careful tax planning.
Inheritance Tax isn’t just something to be considered in old age; the earlier you begin to plan, the better protected your assets will be. Don’t put it off any longer – call us today to discuss your needs with one of our experts.
You can also find out more in our ‘Guide to Wills and Inheritance Tax’ here.