Too many failing to avoid ‘death tax’ wastage
Unbiased’s annual 31-page Tax Action Report showed IHT was the UK’s fourth largest tax waste area, with 85 per cent of taxpayers taking no action in the past 12 months to reduce the amount for which their estate could be liable.
Despite current rules stating life insurance policies are usually free of personal liability, in certain circumstances estates worth more than £325,000 could be subject to IHT of up to 40 per cent. By placing a policy ‘under trust’ they can remove the asset from the estate.
Karen Barrett, the chief executive of Unbiased.co.uk, said: “Ensuring your life insurance payout no longer forms part of the estate is one of the simplest and most effective ways of avoiding ‘death tax’ wastage.”
The report added that placing this under trust can reduce the legal loopholes, with which beneficiaries are usually faced, making it both quicker and easier to distribute the money to the right people.
Philippa Gee, managing director of Shropshire-based Philippa Gee Wealth Management, said: “In my experience, people are aware of this, but the major issue at the moment is not so much IHT planning as the need for better planning about the cost of care. Many don't want to tie up money that they might need for care costs ‘in trust’.
“Its a time for planning and seeking advice irrespective of their eventual cause of action but meeting the cost of care is a major issue.”