Thursday, 27 October 2016

Your IHT Lack of Knowledge Can Cause Unexpected Tax Bills

The annual Canada Life IHT (Inheritance Tax) survey revealed some interesting results on overall knowledge of IHT across the UK. As it turned out, about 60% of respondents have no idea the IHT limit is £325,000 ($395,977, €360,834) and 40% didn’t know IHT is charged at 40%. 

Almost a quarter of respondents did not know their main residence is liable for the tax. On top of that, 28% were uninformed that cash savings and investments were also liable. 

Miscalculating the IHT threshold can lead to unexpected tax bills. For example, an estate leaving the average of UK inheritance of £862,856 (£537,856 above the IHT threshold) would leave beneficiaries a bill of £215,142. 

What to do to reduce IHT?There are, however, legitimate ways to reduce family’s inheritance tax bills. According to Karen Stacey, head of technical services at Canada Life, “it is deeply concerning to see so little understanding about inheritance tax among middle-aged or older people with enough assets to potentially trigger an inheritance tax bill “. It is important to understand IHT is not something for wealthy individuals only, it is applicable to anyone who is thinking of leaving an inheritance of more than £325,000. People can and should get prepared with the help of professional advice and planning ahead. 

“There are a number of legitimate ways to reduce inheritance tax but to use them, people need to know about them as well as have a deeper understanding about the thresholds, rates and exemptions. This is where seeking financial advice early on can be hugely beneficial,” Stacey stated. 

To learn more about inheritance tax as well as other tax, read our e-guide book online, written by our in-house tax specialist, Neil Stokes, who is always ready to speak with you if you have further questions. 

Source: International Adviser, 2016

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