The research also found over 21 per cent of households in Great Britain are now valued at more than the current IHT threshold of £285,000. A further five million are liable for IHT when total household wealth is taken into account, making a total of four in 10 (41 per cent) or 10 million households with an estate liable for a 40 per cent tax bill on their death – up from 34 per cent last year.
The Scottish Widows IHT index analyses property prices and assets after debt, and reveals the average household wealth liable for IHT now stands at about £261,000, just over eight per cent under the current IHT threshold. The current IHT threshold was raised by just 3.6 per cent in April this year, in comparison to house prices, which have risen by 6.3 per cent.
However, the findings reveal there is still little knowledge of this tax. 62 per cent, or 15.7 million homeowners, say they have no idea what the IHT threshold is. Of those homeowners that think they know the threshold limit, only 36 per cent actually identify it accurately as £285,000. Of those actually liable for IHT, only 33 per cent can state the correct IHT threshold.
Two thirds (67 per cent) of all homeowners say they think the current IHT threshold is unfair. Of this group, 31 per cent say they don’t think inheritance should be taxed at all, 22 per cent say inheritance shouldn’t be taxed between blood relatives, and a quarter 26 per cent think the threshold should be raised to over £500,000.
Anne Young, tax expert at Scottish Widows, commented: “Our research shows the Government raising the threshold by just over three per cent in the last Budget has not had any impact on the number of people liable for IHT, in fact the situation has worsened. The six per cent rise in property prices means that thousands more people will now face IHT this year compared to 2005. Whilst the average household wealth has increased from last year, so too has the amount of liabilities meaning the possibility of an added burden of debt left behind to relatives in the event of a death.
“It is important people understand what inheritance tax is, and how families will be affected upon the death of a loved one. IHT is no longer a rich man’s tax, it is a tax that affects more people every day. Spending a few pounds today on inheritance tax planning could mean a future saving of thousands of pounds. I’m sure people would rather their relatives get their inheritance as opposed to the tax man.”
42 per cent of people with property worth over £285,000 have not taken any steps to reduce the amount payable in inheritance tax. 23 per cent say this is because they are too young to worry, with a similar amount (24 per cent) saying it hasn’t occurred to them to even think about reducing their liability. 12 per cent think that it doesn’t affect them, because there is only a spouse or partner that would be affected. Six per cent said they haven’t made any plans because they don’t want to think about dying.
Having dependents benefit more is the main reason for people to take steps to mitigate their tax liability, with six in 10 citing this reason for doing so. Having to pay tax on their own parents’ estate was enough of a pull factor for one out of 10 people.
The most popular actions people have taken to mitigate against inheritance tax are:
- Making a will (62 per cent)
- Setting up a trust (32 per cent)
- Visiting a financial adviser (28 per cent)
- Changing joint ownership of the home to tenants in common (28 per cent)
Young concluded: “IHT needn’t be scary - simply writing a will can make all the difference and there are plenty of professionals around to help you with this, and other decisions. It isn’t pleasant to talk about your own death, but it will be more unpleasant for your relatives to face an unwanted 40 per cent tax bill.”
