11/12/17Families to pay an extra £900m Inheritance Tax by 2022
The Office for Budget Responsibility (OBR) has revealed figures which show that the estimated Inheritance Tax (IHT) payable on estates over the next five years is due to rise by almost £1 billion; from £32.4 billion to £33.3 billion.
This rise is due, in part, to a larger population; more people are dying, therefore more IHT is being paid.
However, other research shows that an improved understanding of IHT regulations could result in many people paying less IHT. Currently, the figures show that, due to a lack of knowledge, IHT is being taken from estates which could have otherwise been avoided.
More information needed
A worrying number of people do not know how the assets that they leave behind will be affected by IHT, according to research from WAY Investments. In fact, almost half (48%) described their understanding of IHT as ‘not very good’ or ‘terrible’. Meanwhile:
- 25% did not know whether their assets would incur IHT when they die
- 48% did not know that IHT can be as high as 40%
- 22% did not know that ISAs can be subject to IHT
As well as lacking information and understanding surrounding IHT, many people showed that they are very disorganised where their assets and estate are concerned. When asked if they had made and updated their will:
- 35% admitted that they do not have a will
- 47% of people who do have a will, have not updated it within the past five years
What difference does it make?
The advantages of knowing how IHT will affect your assets should be obvious. If you know how your estate will be taxed, it is easier to make tax-efficient arrangements. That way, you can leave more for your loved ones and lose less to the taxman in IHT.
Similarly, ensuring that you have a will and keep it updated and valid ensures that your estate is distributed according to your wishes. Without a valid will, your assets will be distributed according to complex intestacy laws, which will lead to two things:
- Your assets will not necessarily be given to the people you would choose to benefit from them
- Your assets may be divided in a way which is not the most tax-efficient. This will mean that your loved ones will lose more than is necessary in tax and will benefit less from the savings and property that you leave behind
Avoiding unnecessary IHT
Making sure that you have IHT-efficient plans in place for your estate is better done sooner than later. Unfortunately, none of us has a crystal ball, and whilst we would all like to believe that we will live forever, we do not know what is around the corner.
Seeking professional financial advice is the first step toward mitigating as much IHT as possible. We can help you to explore the ways in which IHT will affect you, and find solutions which ensure that your loved ones see the benefits of your legacy.
For more information, feel free to get in touch.
The Financial Conduct Authority (FCA) does not regulate Tax Planning and Estate Planning.