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Families set to pay millions in unnecessary tax with half unaware that ISAs are liable for IHT


  • Over half (51%) of over 45s do not know that ISAs are liable for inheritance tax

  • As a result, the government stands to earn millions from people who assume that ISAs can be inherited by their children, tax free

  • Over three quarters (77%) think the UK’s IHT rules are too complicated

Canada Life’s annual inheritance tax monitor has revealed that over half (51%) of over 45s do not know that ISAs are liable for inheritance tax, leaving families across the UK set to pay millions in unnecessary taxes.

As ISAs can only be gifted to a partner and not children without incurring tax, the Government will ultimately be a major beneficiary of the £585 billion1 currently residing in cash and stocks and shares ISAs. In the last budget HM Treasury predicted it will raise £5.3bn in the 2017/18 tax year in inheritance tax, which will eventually increase to £6.5bn by 2022 to 2023.

IHT rules too complicated, but the majority are reluctant to seek professional advice
The research also revealed over three quarters (77%) think the UK’s inheritance tax rules are too complicated, yet despite this, only a third (33%) have sought professional advice on inheritance tax planning. Of the slim proportion who sought advice, over two fifths (42%) spoke to a professional financial adviser, while more than one in ten (16%) conducted their own research via the Internet.

Karen Stacey, Head of Distribution Services at Canada Life said: “There is a huge degree of confusion about the ISA tax rules. Given that some people have been able to amass over a million pounds in their ISAs it’s an area where lack of knowledge could prove costly.

“Many people will inherit less than they expected because they aren’t aware or make assumptions about the rules regarding inheritance. In particular, the rules governing the gifting of ISAs and valuable estates mean that many may be faced with a higher than expected tax bill.

“Early preparation is the key to success here. Taking advantage of alternative methods to secure wealth, such as an onshore investment bond written into a trust or a Wealth Preservation Account to shelter a valuable estate, often ensures that more wealth can be passed onto the next generation.”

* Survey of 1,001 UK consumers aged 45 or over with total assets exceeding the individual inheritance tax threshold (nil rate band) of £325,000. Carried out in October 2017.