Inheritance Tax  

One in 25 expects to inherit estate of £1m

One in 25 expects to inherit estate of £1m

One person in 25 expects to inherit an estate of more than £1m meaning they could face a tax bill of hundreds of thousands of pounds.

The figures have been compiled in Canada Life's annual inheritance tax monitor, which surveyed 1,001 people aged 45 or more with total assets exceeding the standard inheritance nil rate band of £325,000.

The survey also found that one person in every 50 expects to inherit more than £5m.

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Canada Life said the results of the poll revealed the impact of the "massive" increase in wealth in recent decades, brought about by rising stock markets and increased property values.

But the provider warned that without financial planning, much of the estate is likely to be lost in inheritance tax, which is currently 40 per cent for assets in excess of the available nil rate band threshold.

On an estate worth £1m, more than one fifth - £230,000 - would be lost in inheritance tax, or roughly the equivalent of an average UK house price.

Karen Stacey, head of distribution services at Canada Life, said: "People's expectations are likely to be substantially wrong without financial planning, and it is quite likely they could lose substantial amounts of money in tax.

"Yet it is quite possible to ensure that, by using a straightforward trust, the entire amount goes where it is intended - the beneficiaries.

"For people expecting around £500,000 or more in inheritance, there is still a danger of losing tens of thousands of pounds in tax.

"It is very much worth their while talking to a professional adviser or planner to make sure there is a sound financial plan at work.

"The risk of a big inheritance tax bill drops to zero at the inheritance tax threshold of £325,000, below which there is no tax."

Last year HM Revenue & Customs (HMRC) revealed that the amount paid in inheritance tax had reached its highest level since 1986 when the current system was introduced.

In 2016 to 2017 inheritance tax receipts were £4.84bn - 4 per cent more than the previous year - primarily due to rising asset values.

Canada Life found the problem could be compounded by the lack of knowledge surrounding inheritance tax rules.

The majority of people - 70 per cent - could not identify the standard nil rate tax threshold while only one in 20 of those surveyed knew about the residential nil rate band tapering for estates of more than £2m, likely leading to greater tax bills for larger inheritances.

Since April 2017 there has been a £100,000 nil-rate band when a residence is passed on death to a direct descendant.

This will gradually increase to £175,000 by 2020 to 2021 and from then on it will increase in line with consumer price index (CPI) inflation.

Together with the inheritance tax nil-rate band and the ability to transfer unused main residence nil-rate band to a surviving spouse or civil partner, this allowed the government to claim there will be an effective inheritance tax threshold of £1m in 2020 to 2021.