According to Canada Life’s latest IHT annual report, the lack of awareness around Inheritance Tax (IHT) has increased in the last 12 months, with 50 per cent of over-45s who are IHT-liable admitting they are oblivious to whether their property could be subject to the tax.
The 2019 report, which surveyed 1,002 people holding assets worth more than £325,000, revealed the number of Brits who are unaware their main property may be subject to IHT has risen 14 per cent (from 36 per cent in 2018 to 50 per cent in 2019).
Alarmingly, the lack of knowledge extends further than just property liability to other assets. Over three-fifths of respondents (62 per cent) do not think that their pension savings are subject to IHT, compared to 57 per cent a year ago. Two-thirds (66 per cent) are also unaware that agricultural land is subject to IHT; a nine per cent increase from last year’s data.
71% of Brits do not know what the IHT threshold is
The report discovered the majority of respondents are unfamiliar with the tax threshold (which is currently set at £325,000). Confusion also persists around the nil-rate band (NRB) and the rate at which assets above the threshold are taxed (40 per cent). The percentage who are unaware of what this rate is has remained broadly the same year-on-year (54 per cent vs 55 per cent).
Furthermore, just one in ten of over-45s are familiar with the rate that applies when at least 10 per cent of a person's estate is left to charity. Less than three in ten (28 per cent) know the annual exemption rate they are entitled to; down from a third (32 per cent) in 2018.
Neil Jones, Canada Life senior technical manager, concluded on the findings:
"IHT ignorance is rising at an alarming rate in the UK, and there is no indication that this will stop anytime soon.
"The lack of knowledge about the tax threshold on which assets are subject to inheritance tax has the potential to destabilise estate planning and disrupt plans for people to pass their wealth onto future generations."
IHT is an ‘administrative burden’
Just last year, a consultation revealed Brits had an overwhelmingly negative relationship with IHT and that the forms should be simplified to stop putting an unnecessary burden on grieving families. One respondent even referred to the amount of information required to complete the form as ‘a tax in itself’.
The consultation called for HM Revenue & Customs and the HM Court and Tribunal Service to look into how simple and low-value estates could obtain probate (confirmation in Scotland) without having to submit complex IHT forms and that, under circumstances when an estate passes entirely to an exempt beneficiary such as a charity, the amount of paperwork should be reduced.
Wilson & Fish – Specialist Inheritance Tax Advice
With a record £5.2 billion raised in IHT in the 2017/18 financial year, it is imperative to gain expert legal advice to ensure any IHT has been calculated accurately so that the process of winding up an estate is not delayed.
Currently, the standard IHT rate is 40 per cent and is only charged on the part of the estate that is above the threshold. Remember, this rate can be reduced to 36 per cent should 10 per cent or more of the ‘net value’ be left to charity.
Usually, an estate is exempt from paying IHT if:
- the value is less than £325,000,
- everything above this threshold is left to a spouse, civil partner or charity.
IHT is paid to HM Revenue and Customs (HMRC) by the executor, and is typically taken from the funds of the deceased’s estate. The executor needs to obtain the necessary legal permission to deal with the estate – which is known as a ‘Grant of Confirmation’ in Scotland or ‘Grant of Probate’ in England & Wales.
Contact our Executry (Probate) Solicitors, Glasgow
The laws surrounding IHT are incredibly technical, and therefore specialist legal guidance from a qualified advisor is always recommended. If you are looking to minimise your IHT liability, or have been appointed as executor and are concerned about your duties, get in touch with Wilson & Fish solicitors today via the online enquiry form.