One person in 25 in the UK expect to become ‘million-heirs’, and inherit an estate worth £1 million or more, according to Canada Life’s annual Inheritance Tax Monitor survey of people over 45. Around one person in 50 expects to inherit more than £5 million.
However, without financial planning according to Canada Life much of these estates are likely to be lost in inheritance tax (IHT), which is currently 40 percent for assets above the available nil rate band threshold. On an estate worth £1 million, over one fifth (£230,000) would be lost in inheritance tax, or roughly the equivalent of an average UK house price.
Compounding the problem is the lack of knowledge around the UK's IHT rules. The survey showed that the majority of people (70 percent) could not identify the standard nil rate tax threshold (£325,000). Meanwhile only one in 20 of those surveyed knew about the residence nil rate band tapering for estates over £2 million, likely leading to greater tax bills for larger inheritances.
Karen Stacey, head of distribution services, at Canada Life said: “People’s expectations are likely to be substantially wrong without financial planning, and it’s quite likely they could lose substantial amounts of money in tax. Yet it’s quite possible to ensure that, by using a straightforward trust, the entire amount goes where it is intended - the beneficiaries.
“For people expecting around £500,000 or more in inheritance, there is still a danger of losing tens of thousands of pounds in tax. It’s very much worth their while talking to a professional adviser or planner to make sure there’s a sound financial plan at work. The risk of a big IHT bill drops to zero at the inheritance tax threshold of £325,000, below which there is no tax.”
Founded in 1847, Canada Life looks after the retirement, investment and protection needs of individuals, families and companies.
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