Abolition of the 55 per cent death tax charge on unused pension pots may be the signal that a significant change to inheritance tax is coming in the Budget on 18 March, NFU Mutual has predicted.
Sean McCann, chartered financial planner at the firm, stated that it’s likely George Osborne will want to woo voters with another landmark announcement to follow last year’s seismic changes to pensions.
Some, including the Financial Times’ economics editor Chris Giles, have predicted there could be a pre-election giveaway in the Budget, building on the popularity of the measures for savers in the last Budget and coming on the back of a drop in inflation which could improve fiscal projections.
Mr McCann said: “The chancellor could look at an inheritance system similar to the Irish model where, rather than taxing someone’s estate, the person or people inheriting would be taxed instead.
“This approach would bring inheritance tax more into line with the new rules on pension pots.”
From April 6, tax on pension pots for those 75 and older will be charged to the beneficiaries, while for everything else, inheritance tax is still charged on the estate rather than the recipient.
Despite calls for reliefs and exemptions, inheritance tax remains unpopular, with many arguing for the threshold to increase from the existing £325,000 to at least £1m.
The call comes as new research by Canada Life International reveals 62 per cent of UK adults aged over 45 with assets above the individual IHT threshold are unaware that it is set at this level.
The firm surveyed 1,007 people in this age bracket, finding that only 37 per cent have an understanding of how IHT works.
Only 43 per cent of those with assets above the individual threshold are aware that IHT is levied at 40 per cent, while one in 10 incorrectly think IHT is levied at a rate of 28 per cent, the highest rate of capital gains tax.
The insurer explained that estates can pay inheritance tax at the reduced rate of 36 per cent on some assets if 10 per cent or more of the ‘net value’ of their estate is left to a charity. It said just 3 per cent of those surveyed were aware of this provision.
The study also showed that 16 per cent believe no taxes apply to passing on assets while they are alive, while 14 per cent readily admit that they do not know understand any of the tax implications for passing on assets before death.
Sean Christian, managing director of Canada Life International, said: “Inheritance tax hits the mass affluent but many people who are moderately well-off do not seek the kind of financial advice that will lead to lower IHT bills for their family.”