According to a survey by investment manager TIME Investments, almost one in three (31 percent) of people over the age of 55 in the UK have not examined how IHT could affect their wealth after death.
And this despite the fact that 36 percent of the 1,019 adults surveyed rate their estate as higher than the current allowances.
IHT is typically collected on estates when a person has died before assets are passed on to beneficiaries.
Currently, 40 percent is charged on those parts of an estate that are worth over the £ 325,000 threshold.
In the eyes of HMRC, an individual’s estate can include their property, certain possessions, and even cash.
The tax must be paid by the end of the sixth month after the person’s death, otherwise HMRC will begin paying interest on the estate’s debts.
For the 2020/21 fiscal year, HMRC received £ 5.4 billion in revenue from IHT on the estate of the recently deceased.
According to the government, this corresponds to an increase of four percent, which corresponds to an increase of around 190 million pounds over the previous tax year.
About 36 percent of people in the aging demographics estimate their estate would be worth more than £ 325,000, which is the current zero rate.
Another 20 percent believe their estate is worth more than £ 500,000, which is the current tax exemption with the zero rate of residence.
Research has shown that UK property remains a large part of the population’s wealth.
Almost a third (31 percent) of those 55+ say their home is worth more than £ 325,000, compared to 25 percent of the total population.
One of the most alarming results from the study was that 28 percent of people in the age group said they didn’t even have a will.
Tax and inheritance experts always emphasize the importance of individuals explaining how their wealth should be handled after their death and who should be their beneficiaries.
Henny Dovland, IHT Technical Specialist at TIME Investments, works in line with this line of thought as he explains the impact of IHT on tax debt to the public.
Mr Dovland said, “Many over the age of 55 will have rebates worth more than the current IHT allowances and it is a good first step to see what impact IHT could have.
“Freezing the IHT allowance budget through 2026 will inevitably lead to more people facing tax bills, and it makes sense to start planning as soon as possible.”
For anyone concerned about how the IHT will affect their estate and loved ones, the government has an online calculator on their website that can be used to calculate the amount needed to be eligible for the tax.
Mr Doyland also shared his top tips for effective cross-generational financial planning:
- Assess a customer’s exposure to IHT and start planning across generations early to avoid time constraints
- Think of the wider family and the younger generation
- Understand financial planning strategies that can benefit multiple generations at the same time
- Think about including Business Relief in IHT planning
- Use the RNRB to its full effect
- Visit trusts again to evaluate their effectiveness for today’s families
- Use retirement planning as an efficient means of protecting heritage
- Make sure customers don’t pass on too much too soon and lose control or become dependent
- Regularly review each individual’s circumstances.