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IHT confusion soars with 70% of wealthy unaware of nil rate band

• The majority of people (70%) do not know the threshold for the standard nil rate band (£325,000) – a rise from 61% in 2016

• Nearly two in five (38%) do not think their main home is liable for IHT – an increase from under a quarter (24%) in 2016

• Government in line for record IHT revenues

More than two thirds of wealthy people do not know their estate may be liable for an inheritance tax bill, according to Canada Life’s Annual IHT Monitor research. Among adults over the age of 45 with assets in excess of £325,000, 70% of people do not know the threshold for the standard nil rate band (£325,000), up from 61% in 2016.

In addition 55% of people do not know the rate at which assets above their available nil rate band are taxed, up from 52% in 2016. As a result of this confusion, families up and down the country could potentially be faced with unexpectedly high tax bills.

The results underline the increasing revenue the Government is receiving from inheritance tax. Latest figures show receipts from IHT have hit a record high, with families paying £4.84 billion of IHT in the 2016/17 tax year, double what it was just seven years earlier (£2.4 billion in the 2009/10 tax year)*.

More homeowners unware of IHT rules, compared to 2016

Nearly two in five respondents (38%) do not think their main home is liable for inheritance tax – a large increase from under a quarter (24%) who said the same in 2016. This will come as a shock to a significant proportion of homeowners who are planning to pass their wealth on to family members.

Meanwhile, under a third (32%) know the annual exemption amount they are entitled to (up to £3,000) – but an additional third (35%) currently believe they can give away more than £3,000 without being charged, bringing with it the possibility of unexpected bills.

Worryingly just four in ten are aware that the following are liable for inheritance tax as part of an estate on death: pension savings, vehicles, life insurance policies not held under trust, agricultural land, business assets and non-exempt gifts in the last seven years.

Karen Stacey, Head of Distribution Services, at Canada Life said: “There is a disturbing lack of knowledge which will undoubtedly translate into unnecessarily high inheritance tax bills. For many people, their single largest asset is their house – it’s what they have worked their entire life to own and many have benefited from an extraordinary increase in its value. Their hopes for securing their children and beneficiaries’ financial futures rest on being able to pass on as much of its value as possible.

Unless people learn more about taxes and actively plan the future of their estate, the Government is in line for a large, ongoing and often unnecessary windfall. Yet by taking a few simple steps this can often be avoided, ensuring that people’s estates go exactly where they want it to. Seeking professional estate planning advice early on is a key step which can help families and individuals avoid the typical inheritance tax pitfalls and unexpected bills.”