- 59% say inheritance tax rules are confusing
- Just 15% confident how much they can gift each year without it being counted for IHT
Almost three in five (59%) UK adults admit they find inheritance tax (IHT) rules confusing, new research from Canada Life reveals – raising concerns that families could miss chances to pass on wealth efficiently or face unnecessary tax bills.
With frozen thresholds and recent policy changes set to pull more families into the inheritance tax net, just 6% describe their understanding of the rules as very clear.
The start of the tax year is an opportunity to take stock of gifting allowances and exemptions, yet just 15% of Brits feel confident about how much they can gift each year without it being counted for IHT purposes.
The majority (74%) have either heard of certain gifting allowances and exemptions but do not know the details, or simply don’t know anything about it, whilst one in ten (10%) incorrectly think all gifts sit outside of IHT calculations.
Only a quarter (26%) of UK adults could correctly identify the annual tax-free gift allowance as £3,000. The remaining 74% either chose the wrong amount or said they did not know. This allowance, known as the annual exemption, can be given to one person or split between several people. Any unused annual exemption from the previous tax year can also be carried forward.
More than half (57%) are either not aware of the seven-year rule or do not know how it works. The seven-year rule applies to all gifts not covered by an exemption and allows gifts such as cash or property to fall outside the estate for IHT purposes if the donor survives for seven years. If they die sooner, the gift may be taxed, with the full 40% rate potentially applying if death occurs within three years. Only 27% say they fully understand this.
John Chew, tax, trusts and estate planning expert, Canada Life said:
“With rising property values, IHT thresholds frozen until 2031 and pensions set to be included in inheritance tax calculations from April 2027, an increasing number of families who never expected to pay inheritance tax may now need to review their financial planning strategies.”
“Confusion around inheritance tax can have real consequences: families risk missing valuable reliefs and exemptions or face delays and additional stress at an already difficult time.”
“As we embark on a new tax year, now is a good time to take stock of your estate and assess your inheritance tax position. The earlier families start to plan, the more scope they have to use allowances and exemptions, make gifts in a tax efficient way, and structure their affairs so that more of their wealth goes to loved ones.”
“Given the complexity of the rules and the growing number of estates likely to be affected, professional financial advice is essential to help ensure that wealth is passed effectively to the next generation and to reduce the risk of unexpected tax bills.”
