Brits set to waste £595 million in unnecessary inheritance tax payments

• UK tax payers are expected to waste £595 million in needless inheritance tax payments in 2016, £45 million more than in 2015
• Among the 21% expecting to be hit by IHT, two thirds either plan to or have already sought financial advice from a qualified adviser
• Unbiased and Prudential research shows that men are more likely than women to expect to pass the IHT threshold

Research from Prudential and unbiased, the site connecting millions to advice, shows as much as £595 million¹ is to be wasted in unnecessary Inheritance Tax (IHT) payments in 2016 - £45 million² more than the previous year.

IHT is charged to the recipients of an inherited estate when its value is higher than £325,000, with 40% tax placed on anything that exceeds that threshold. The IHT threshold has not increased over the last year, but is doubled for married couples who between them can pass on up to £650,000 to their beneficiaries without it being liable to tax.

Tax Action 2016 shows that only 21% of UK taxpayers expect the value of their estate to exceed the IHT threshold when they die, although current uncertainty around financial markets following the EU Referendum in the UK may well see this figure fall as people see their personal wealth diminish. The impact of the “Brexit” vote on the value of sterling will no doubt knock consumer confidence and cause people to second guess the value of their estate. In London, which stands apart from the rest of the UK in terms of property prices, this percentage increases to 44% of people who anticipate their estate to exceed the IHT threshold. 

Karen Barrett, chief executive at unbiased.co.uk comments: “Whether you expect your estate to pass the IHT threshold or not, planning with a qualified adviser for how to pass your estate not only protects your wealth for future generations, but importantly can alleviate stress for your family at a time when they’re likely to be most emotionally strained.  Wills and inheritance can frequently become contentious issues, and if, for example, your children are faced with the decision to let go of the ‘family home’ or be forced to sell something of their own to cover the tax bill, the inheritance can be more of a bust than a boom.”

Among the 21% expecting to be hit by IHT, two thirds (67%) say they either plan to or have already sought financial advice from a qualified adviser to reduce this liability, whilst 24% have not and do not plan to do so. Men are more likely than women to anticipate their estate to be worth more than £325,000 when they die (25% of men vs 17% of women), while younger people were understandably more likely to answer “don’t know” (25% of 18-34s compared to 11% of those aged 55+).

Les Cameron, tax specialist at Prudential, comments: “There are many considerations for inheritance planning - what is your potential liability; who gets what and when; would a trust be useful and balancing the need for access and control against the tax efficiency of any solution.

"The new rules on passing on your family home and the rise in people looking to use their pensions to pass on wealth means that there’s no time like the present to get in touch with a good financial adviser to develop a plan that best suits your circumstances."

The data also revealed that one in five (19%) of all UK adults feel they understand more about IHT compared to last year, whilst 7% feel they understand less. The biggest increase is amongst those aged 18-34, 22% of whom feel that they know more compared to a year ago, likely a reflection of increased engagement among the younger generation with their finances and the need to plan for their future. 

Karen Barrett, chief executive at unbiased.co.uk comments: “Although many people have heard of inheritance tax few are really aware of its implications and how it can be reduced. Reducing how much inheritance tax is due on an estate is doable but it is also complicated. Paying into a pension, putting your assets into a trust and ensuring you have a will are all ways to reduce your tax bill and ensure your estate is distributed as you wish.  Last year, during Write a Will Week, we revealed that over half (58 per cent) of UK adults have not even written a will, meaning their final wishes may not be realised.

“There is no one size fits all for writing a will or tax planning, but speaking with a professional adviser or solicitor is the best course of action to ensure you make the right decision for you. Many of us want to pass our estate onto those closest to us after we die; forward planning and clear instructions will ensure your wishes are carried out and the amount you are able to pass on is maximised.”

ENDS

Notes to editors:

¹TaxAction report 2016 has been produced by Opinium Research on behalf of unbiased.co.uk. All figures are based on calculations done on unrounded values to guarantee accuracy; text paragraphs display rounded figures. Survey results come from an Opinium online survey, commissioned by unbiased.co.uk, of 2,001 UK adults aged 18+ carried out between 17^th to 20^th June 2016. Results have been weighted to nationally representative criteria.

²2015 TaxAction Research can be found here.

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