Over 50s unsure about inheritance tax rules

The majority of taxpayers over the age of 50 with an inheritance tax (IHT) bill are unaware that the money they wish to leave behind could be liable for the tax.

According to a survey by financial advisers deVere Group, the majority of UK taxpayers over the age of 50 are unsure about IHT rules.

Since April 2022, around 72% of the firm’s new clients aged over 50 and with assets over the IHT threshold were unaware that the threshold was £325,000.

Currently, any part of an estate up to the threshold does not pay IHT but any part of the estate valued at over £325,000 pays 40% tax.

Tax liability has become increasingly common in recent years as house prices have risen significantly, but the IHT threshold has remained unchanged.

The almost 20-year freeze in the nil rate band, coupled with inflationary pressures, will see many families with moderate levels of wealth being drawn into HMRC’s net.

With HMRC subsequently raking in £7.1bn in IHT receipts in the last tax year, deVere stressed that a lack of awareness of inheritance tax rules could leave families with huge tax bills.

HMRC reported a 24% jump in the number of people paying IHT with the tax take nearly double the £3.8bn raised in the 2018/19 tax year.

Nigel Green, CEO of deVere, said: ‘It’s very worrying that those with assets that could be raised by IHT had a lack of understanding about what is likely to happen. It puts these people’s families at risk of being hit with an unexpected, and potentially considerable, tax bill at the point of the death of a loved one.

‘It’s even more troublesome as, in our experience, people feel so strongly about inheritance tax. Many despise the idea of money that they have already paid tax on being taxed yet again. It’s a human instinct that they would rather their loved ones benefit from their legacy than it being taken by the government.’

Guidance to avoid the bill includes establishing a trust, using gift allowances which allow you to pass on money to loved ones while shrinking your estate, alongside holding properties as tenants in common with your spouse.

Green added: ‘To mitigate a potential IHT issue, clearly you need to be informed, and planning early with professional advice will be hugely beneficial as it can help you to legitimately avoid leaving your loved ones with huge bills to pay and give them more of your legacy. ‘It must be remembered that IHT is not targeted at only the very wealthy individuals any longer.’