Inheritance tax impacts more people than ever yet over a quarter of high net worth individuals have no measures in place to mitigate it

by | Aug 1, 2023

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The latest research from Saltus has found that over a quarter of high net worth individuals do not have measures in place to address inheritance tax (IHT) or increase the tax-free assets that they hope to pass on.

In the latest Wealth Index Report, which surveyed more than 2,000 people in the UK with investable assets of £250,000 or more, 28% of respondents said they had no measures in place to address inheritance tax. 

Of these respondents, 8% do not have any plans in place, although they do plan to at some point. 4% haven’t thought about it and 2% do not plan on taking any measures at all to mitigate the impact of inheritance tax.

 
 

The current IHT thresholds are due to be in place until 2028 and, with inflation persisting, this means that more and more people are crossing the threshold and will be liable to pay the tax. When it was set, back in 20091, the average home in the UK was worth £154,066. Now, it is £261,9952. Despite a 70% (£107,929) rise in the value of the asset that makes up the vast majority of most estates, the nil rate band has not changed, meaning that, every year, millions more families are pulled into the IHT net.

In the UK, inheritance tax is charged at 40% on estates that are worth above the ‘nil rate band’, which has been set at £325,000 for the past 14 years. Although there are several exceptions – like passing your estate onto a spouse or charity, and the residence nil rate band adding an additional £175,000 to your threshold if you give your home to your children or grandchildren – the UK still has one of the highest ‘death tax’ rates in the world. In Italy, IHT is just 4%, while Australia, Canada, New Zealand and around 20 other countries have no IHT at all.

In 2021/2022, HMRC received £6.1bn in IHT payments – a £729m (14%) increase on the previous 12 months3. Despite the rise in the number of estates liable to pay inheritance tax, and the increase in the amount of inheritance tax being paid, Saltus’s data has revealed that many of the UK’s wealthiest people are failing to make plans to pass on their wealth and protect their estates from IHT at a time when an increasing number of people need to consider the potential implications of this tax. 

 

There are, however, several ways that people can minimise the impact IHT has on their loved ones. Saltus has found that, of those HNWIs who currently have measures in place to pass on their wealth (72%), 64% either already have passed it on (28%) or plan to pass it on (36%) to friends and family as gifts, and 65% either already have bought (24%) or plan to buy (41%) a funeral plan. Six in ten (61%) of HNWIs plan to leave money to charity (36%) or have already (25%) made a gift to charitable causes as part of their inheritance planning. 

Mike Stimpson, Partner at Saltus commented:

“It is surprising that a quarter of HNWIs do not have IHT plans in place, as we know that people want to leave as much of their wealth to their loved ones as possible and proper planning can ensure this happens. The years where inheritance tax (IHT) applied only to the UK’s wealthiest are long behind us. Over the last 20 years, we have experienced a boom in UK property, which means many more of us will be impacted by IHT and need to consider which measures to put in place. 

 

It has been widely reported that the Government held talks about scrapping inheritance tax. Given that Saltus’s latest research shows that over a third (36%) of HNWIs feel that they already pay too much tax, the removal of IHT (if it were to happen) would likely be welcome news to them as well as to the increasing number of people pulled into being subject to this tax.

“As things stand, inheritance tax can be a significant burden on estates, but there are a variety of tools and strategies available to minimise its impact. By taking the time to consider this as part of a financial planning strategy, people can ensure that their beneficiaries receive the most from their legacy, rather than the government.”

Despite IHT challenges HNWIs overall confidence in the economy is slowly returning 

 

The research around measures HNWIs have in place to address IHT is included as part of the Saltus Wealth Index Report – a biannual study into the thoughts and attitudes of HNWIs about their own wealth and the wider UK economy.

The Saltus Wealth Index is included in the Report as the UK’s only barometer of confidence levels amongst HNWIs. The Index is calculated using respondents’ answers to nine questions around their own wealth and the wider UK economy to create a ‘confidence’ score that is set between 0 and 100.

The Index currently stands at 60.9 – a small increase compared with the last Index (measured in January 2023) of 59.5. This rise was led primarily by a 4% increase in the number of respondents who have confidence in the UK economy (71% vs 67% six months ago) and the fact 82% of HNWIs feel more confident about their own wealth, indicating that, despite recent challenging circumstances including political turmoil, stubbornly high inflation and rising interest rates, HNWIs are feeling overall more optimistic about their prospects now than earlier this year.

 

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