Inheritance Tax  

Majority of Brits ignorant of new IHT break

Majority of Brits ignorant of new IHT break

Seven out of ten people in the UK know nothing about a new rule granting hefty inheritance tax breaks on property, research by Old Mutual Wealth has revealed.

The residence nil rate band (RNRB), due to come in on 6 April, allows people to pass on the first £100,000 of the value of their property to children or grandchildren tax free.

That £100,000 is in addition to the existing nil rate band applied to the entire estate, which currently stands at £350,000. 

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A survey of more than 1,000 homeowners in March with at least £50,000 in wealth found 70 per cent of respondents knew nothing about the new rule, a figure Old Mutual Wealth described as "staggering".

But of those that did know about RNRB, though, many were still unaware of some the policy's key details.

Almost half (45 per cent) did not realise they could select which property to have the allowance against, as long as they had lived in it at some point.

Rachael Griffin, financial planning expert at Old Mutual Wealth, pointed out the property also did not need to be in the UK.

Ms Griffin said another key detail was that the value of a sold property could still be included in the RNRB - a measure introduced to avoid discouraging people from downsizing. Again, 45 per cent of respondents were unaware of this rule.

Forty per cent, meanwhile, did not realise any outstanding mortgage would be deducted before applying the allowance, while 36 per cent did not know the property had to be left to direct descendants - generally children or grandchildren - to benefit from the allowance.

While the RNRB is due to start at £100,000, it will rise rapidly, reaching £175,000 in the 2020 to 2021 tax year.

"With the new residence nil rate band coming into force next week, it is alarming that 70 per cent still have no understanding of the new allowance," Ms Griffin said. 

"Even those who claim to have a good understanding of the residence nil rate band failed to correctly answer some questions on the detail of the new legislation.

"The lack of understanding around the new rules could result in people not structuring their will or their financial affairs in the most effective way."

Robert Wilcocks, chief executive of London-based advice firm Wilcocks & Wilcocks, said he was reviewing all his existing clients' wills in preparation for the new rules.

"Anyone with first death planning within a current will should be reviewing their will," he said, adding that with up to £175,000 extra up for grabs, it was a "no brainer".

He said he wasn't surprised that so many people were unaware of the rule. "Half the population hasn't even got a will," he said.