More than half of affluent Britons unaware of inheritance tax threshold

17th February 2014

Affluent Britons could face unexpected tax bills on their estate because they have no awareness of the inheritance tax threshold. The latest Trends in Wealth Report: Heir today, gone tomorrow by Close Brothers Asset Management shows that just 47% of those liable for inheritance tax on their personal assets know the correct threshold. Moreover 14% wrongly assume the threshold is £500,000 or higher.

Grant Thornton forecasts that the number affected by the tax will double by 2016/17, rising from 21,000 in 2012 to 42,000. The Office for Budget Responsibility (OBR) estimates that with the inheritance tax threshold frozen at £325,000, the Treasury’s tax take will climb by 60% in the next five years, climbing from an estimate £3.5bn in 2013/14 to £5.6bn in 2018/19.

The research suggests that despite their exposure to inheritance tax, 43% of the affluent respondents have never sought professional advice from a lawyer, accountant or financial planner and 11% have not discussed passing on their wealth with anyone at all.

Some18% of affluent respondents surveyed were unaware of the seven year gift rule where gifts made seven years previously become exempt. There was significantly less awareness of the Business Property Relief, with two thirds (66%) unaware of this tax-saving measure.

This lack of awareness is reflected in the number who have not yet put adequate plans in place to minimise IHT liability. More than a third (34%) of those with assets over the threshold have not put any plans in place to protect their wealth. Worryingly, almost the same amount (32%) do not believe they need to do anything to protect their assets.

Regional divides

The report found that awareness and understanding varies across the UK. The affluent in the North West were the most likely to consider the process involved in passing on assets (87%), while those in the North East had the best awareness of the current threshold (57%).

There was also a clear tension between wealth and exposure to inheritance tax in London. Affluent London respondents were the wealthiest in the UK, with an average of £1.33m in assets, £441,500 more than the national average. The speed at which property prices have risen, as well as higher wages, have played a part in this disparity.

The average house price in London is £434,000, 77% higher than the UK average, according to data by the Office of National Statistics (ONS) 4. However, despite being the most exposed to inheritance tax, just 38% of those living in the capital could confirm its threshold, the second lowest in the UK (after Wales).

Patrick Haines, Regional Head of Advice at Close Brothers Asset Management says: “When it comes to personal finances, those looking to pass on their wealth cannot let inheritance fall under the radar. It can only be ignored for so long. With £75bn3 being inherited in the UK every two years, large sums of family wealth are left unnecessarily exposed to tax. A combination of planning inertia and a general lack of awareness is to blame, but it is crucial that those who will see their estates subject to the tax understand their liability.”

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