Inheritance Tax  

IHT net traps unwary clients, says Canada Life

IHT net traps unwary clients, says Canada Life

Property wealth is likely to drag more Britons into the scope of inheritance tax, the head of technical services for Canada Life has warned.

Karen Stacey said there was a "widespread lack of understanding" about a new tax allowance that might help people who are breaching the inheritance tax (IHT) threshold simply because their house price has risen.

Although the IHT threshold has remained at £325,000 since 2009, the exponential rise in house prices across the UK - and particularly in central London - has meant people risk being hit by punitive IHT.

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However, in the Summer Budget 2015, the then chancellor George Osborne announced a new allowance called the residence nil-rate band, which allows up to £175,000 per individual.

This is being implemented from 1 April 2017 and provides a new additional allowance for passing on property wealth to direct descendants tax free.

Ms Stace commented: "There is a widespread lack of understanding about the new family home allowance, even though it will be available from April and should be part and parcel of any estate planning already."

A survey carried out by Canada Life among 1,001 UK consumers aged 45 or over with total assets exceeding the individual IHT threshold (nil rate band) of £325,000 found 75 per cent were unaware of the new residence nil-rate band.

Only 4 per cent knew the allowance was up to £175,000 per individual. 

Ms Stacey said: "Eight out of 10 wealthy Britons think the IHT regime is far too complicated and most will need help from professional advisers to steer them through the rules.

"Complicated rules and a widespread lack of knowledge means families face paying over the odds but seeking clear advice and planning ahead would ensure they don’t pay more than they need to."

In addition the threshold of the main residence nil rate band decreases in value if the deceased’s estate is worth more than £2m, something of which 63 per cent of people were unaware.

She pointed out that, according to HM Revenue and Customs' data, receipts from the death tax grew by a fifth in the last year.

Earlier this year, Paul Latham, managing director of Octopus, told FTAdviser: "Few would argue these days about the growing need for IHT planning. The latest figures from HM Revenue and Customs (HMRC) find the government took almost £4.7bn in IHT in the 2015/16 tax year.

"That is the highest figure for inheritance receipts since the current system was introduced in 1986."