Third of over 55's have no idea if their family will pay inheritance tax

Nearly a third of over-55s have never checked to see whether Inheritance Tax (IHT) could affect them, with many wrongly assuming they’re not wealthy enough to exceed the £325,000 tax-free threshold.

According to a study in August 2021 by TIME Investments, nearly one in three (31%) of over-55s said that they have never looked into how IHT could affect them despite 36% of the participants estimating their estate values exceed the current tax-free allowance threshold.*

This is despite the 24% rise in the number of people paying IHT in the 2021/22 financial year resulting in a record £7.1bn pocketed by HM Revenue & Customs in IHT receipts. 

Concerningly, around 28% of the over-55s that took part in the study said that they didn’t have a will in place, showing that a relatively large proportion of the over-55 sample not only hadn’t given IHT any thought, but also hadn’t even considered inheritance at all. The risk to their loved ones to pick up the financial aftermath of not planning ahead, is greater than ever!

Arrange your free initial consultation

What is IHT? 

Inheritance Tax (IHT) is a tax levied by the Government on the estate of a deceased person in the UK. This includes all of their assets including property, personal belongings, and investments.

However, this levy only applies to the total value of the estate that exceeds the IHT threshold or ‘nil-rate band’. As of the 2023/24 tax year, the threshold is set at £325,000. Anything above £325,000 could be subject to up to 40% inheritance tax.

Currently, the threshold is frozen. This was initially announced by the then Chancellor, Rishi Sunak, in his 2021 Budget. The Budget outlined that the IHT threshold would be frozen for five years until 2026. However, after Chancellor Jeremy Hunt’s Autumn Statement, it was confirmed that the freeze would be extended a further two years until April 2028.

Why is it important to think about IHT?

Total IHT receipts collected by the Government have been steadily on the rise since the IHT threshold freeze. Due to the rising rate of inflation coupled with ever increasing property value across the UK, the freeze essentially means that a greater number of people will cross the inheritance tax threshold each year. Many have been calling this move an example of ‘shadow tax’, as the freeze ultimately means an increasing number of Britons will fall into the tax threshold each year until the freeze ends in April 2028, and by then the Government will have collected billions in extra inheritance tax.

With 36% of over-55s in the TIME Investments report estimating their estate would be worth more than the £325,000 threshold and 20% estimating that their estate value exceeds £500,000 (which is the current allowance with the residence nil-rate band), there is a good chance - if you fall into this demographic - that the value of your estate is likely to exceed the threshold. This means that, without proper planning, you could be paying significant amounts of your estate in inheritance tax instead of the money going to your family.

How is inheritance tax calculated?

To help you visualise these numbers, we've put together this Inheritance Tax calculator:

With so many more people exceeding the tax-free IHT threshold, it's more important than ever to seek professional advice to help navigate the threshold and high inheritance tax penalties. If you’re interested in how to manage your IHT to ensure the best possible wealth protection for you or your family, we can help. Give us a call on 0333 323 9065 or book a free non-committal initial consultation with a member of our team to find out more.

In our latest webinar The Art of Avoiding Inheritance Tax, experts Steffan Alemanno and Harry Donoghue showcase the steps you can take to pass down your wealth in the most tax efficient way. Watch it back here!

* Source: TIME Investments

Arrange your free initial consultation

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate estate planning or tax advice.