Taxman grabs family fortunes thanks to inheritance tax ignorance

Taxman grabs family fortunes thanks to inheritance tax ignorance

GETTYFamilies could end up paying tens or even hundreds of thousands of pounds in inheritance taxFamilies could end up paying tens or even hundreds of thousands of pounds in tax through an ignorance of the rules which can prove costly. Three fifths of people who face a potential IHT bill fail to realise their estate may be liable, according to a new survey by insurer Canada Life. Many do not know how much they are likely to pay, with more than half saying they didn’t realise that IHT is charged at a hefty 40 per cent.BAD INHERITANCE Latest figures from HM Revenue Customs showing receipts from IHT have hit a record high. Families paid £4.7billion of IHT in the 2015/16 tax year, up 22 per cent on the previous year, and the figure is expected to rise. IHT is charged on assets above £325,000 but this threshold has been frozen since 2009 while soaring house prices brought many homeowners into the net. It means IHT is no longer a tax on the very rich, most of whom avoid a bill through careful planning. The UK’s third richest man, the Duke of Westminster, died recently but his son will pay little or no death duties on his £9 billion windfall, as most of the estate is protected by tax-exempt trusts. Karen Stacey, head of technical services at Canada Life, says too few middle-aged people understand the IHT threat. Many do not realise that their family home, savings, investments, and even tax-free individual savings accounts are liable to IHT. The insurer’s survey also shows that nearly four out of five Britons believe wealth should stay in the hands of their family. “There are a number of legitimate ways to reduce IHT tax but people need to know about them,” Stacey says. The survey also found that, of those who expect to leave an inheritance, the average amount is £862,856. This would leave £537,856 above the IHT threshold, triggering a whopping £215,142 bill.PAGeorge Osborne announced a transferable IHT allowance for those leaving their main home to relativesNIL-RATE BANDThe IHT threshold, or nil-rate band, will remain frozen until 2021 at today’s £325,000, which doubles to £650,000 for married couples. Former Chancellor George Osborne previously announced a new transferable IHT allowance for those leaving their main home to their children and grandchildren, which will be phased in over four years from April. By 2020 this will be worth £175,000 for parents, lifting the nil-rate band to £500,000 per parent, or £1 million for married couples. Tim Fullerlove, partner at Wilsons private client law firm says more families need to write watertight wills to reduce their tax liability.GETTYPeople who die before age 75 can now pass on untouched pension funds free of taxIHT FREETrevor Clark, operations director at chartered financial planners Rutherford Wilkinson, says families should plan as early as possible to soften the IHT blow. The most popular way to reduce the cost is by making gifts to loved ones, Clark says. “Gifts only become totally free of tax if you live for another seven years so keep accurate records of gifts made.” You…

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