Almost 90 per cent of people are ignorant of the threshold for inheritance tax (IHT), with one in three homeowners not having thought of planning for it, reseach by Octopus has suggested.
A survey by the tax-efficient investment specialist of 2,000 UK adults in February, found only 14 per cent of adults and 18 per cent of over-70s know the current IHT threshold.
Just 8 per cent of thsoe asked, and six per cent of those over 60, are aware Isa savings are subject to a 40 per cent IHT charge on death.
Octopus said this means people could be sleepwalking into leaving an IHT bill for their loved ones by not understanding the charge, and failing to realise tax efficient savings in life are not free of IHT on death.
The findings come as the government forecasts the tax take from IHT receipts will increase from £3.8bn last year to £5.6bn in 2020-2021.
This is despite the phasing in the new IHT-free allowance of £175,000 per person, introduced by the government in last year’s summer Budget, which can be used against the family home.
Simon Rogerson, chief executive of Octopus Investments, said getting financial advice can make a real difference to people’s lives.
“Our latest research shows just how vital it is to be aware of the key rules and regulations around tax planning so you can make your money work harder for you and help look after those you love when you are gone.”
He said that even though Isas remain the “go to” financial product for most people, there is a worrying lack of awareness of the IHT charge.
Not enough people are talking about it or doing it, or thinking death may be round the corner. Caroline Garnham“Isas are a great tax efficient investment in your lifetime, but more people need to be thinking about how to pass on their hard earned money to their loved ones when they die.”
Since 2013, when the government announced shares listed on the Alternative Investment Market could be held in Isas, it has been possible to invest into an IHT free Isa by holding shares listed on Aim that qualify for Business Property Relief (BPR), Octopus stated.
It pointed out that shares that qualify for BPR fall outside of the scope of IHT, as long as the shares have been held for at least two years and are still held at the time of death.
According to Octopus, this Isa option could be an interesting solution for older investors looking to reduce their IHT bill, while maintaining the lifetime tax benefits associated with an Isa.
Caroline Garnham, chief executive of Garnham Family Office Services, agreed that people “really are clueless” about IHT.
“It is the tax which is most disliked, from our questions with clients, and not enough people are talking about it or doing it, or thinking death may be round the corner.
“There’s not enough planning for IHT ahead of death, and sleepwalking into it is exactly what they’re doing. There has to be more awareness.”
