In Focus: Advice for Women  

Poor planning means women pay more inheritance tax

Poor planning means women pay more inheritance tax

Women are more likely to pay too much in inheritance tax due to a lack of financial planning, research has shown.

More than half (53 per cent) of women plan on leaving an inheritance, but of this group, 55 per cent have not made any financial plans compared with 41 per cent of men, according to Fidelity International.

In a survey of 2,000 UK adults conducted between June 28 and July 2 by Opinium, 37 per cent of women said they didn’t understand the rules around inheritance tax, compared with 25 per cent of men.

Women are also less likely to make immediate plans to reduce their tax liability in the future.

Despite one in five, around 19 per cent, planning to gift part of their wealth to family or friends in the next five years, just over half (53 per cent) are unaware that the money will have to be given away seven years in advance of death to avoid paying inheritance tax.

In the UK women hold more wealth than men, with figures from the Office for National Statistics showing that female-owned estates that are liable for tax have an overall net capital value of £13.6bn, compared with £12.3bn for men.

According to Fidelity International, this translates to female estates being liable for £430m more in inheritance tax than male-owned estates. 

This is most likely due to the fact that women have a higher life expectancy.

Dawn Mealing, head of advice policy and development at Fidelity International, said: “Out of those who are liable to pay inheritance tax, women’s net estates are worth £1.3bn more than men’s.

"Yet, almost half have done no financial planning to make sure this wealth is gifted the way they want - something isn’t adding up.”

She said when women outlive their male partners, they are making bigger decisions as they are responsible for both their own and their partner’s wishes.

“Without help from an adviser they could find themselves lost.”

 Mealing gave some tips for women planning on leaving an inheritance:

  1. Create a will. Fidelity research shows that half of women aged 55-64 don’t have a will. This doesn't just apply to money but heirlooms or businesses.
  2. Be aware of gifting rules. Each year you can gift up to £3,000 without being subjected to inheritance tax. You can also make wedding or civil ceremony gifts of up to £1,000 per person, which increases to £5,000 for a child and £2,500 for a grandchild. Gifts to spouses or civil partners, charities, museums, universities, some political parties and sports clubs are also not subject to inheritance tax.
  3. Contribute towards pensions or savings. As long as it comes from your income, pension or savings investments (such as a stocks and shares Isa) are exempt from inheritance tax as they are classed as a ‘gift out of normal expenditure’ and pensions attract tax relief.
  4. Understand investing for children. You can gift a tax-free allowance of up to £9,000 per annum to a Junior Isa or £3,600 per annum to a Junior Sipp, which are both tax exempt provided you don’t pass away for seven years after making the gift. 
  5. Maximise your pensions. Pensions are generally exempt from inheritance tax, and you can also use your spouse’s source of income so that you make maximum use of tax allowances and reliefs.