Fewer than four in 10 people (37%) in the UK are aware of the regulations on passing on wealth after death, research commissioned by Quilter found.
The wealth manager said that people are still not informed enough despite the UK treasury collecting a record £5.2bn ($6.8bn, €6bn) in inheritance tax (IHT) last year.
However, on 6 April, the government increased the inheritance tax threshold for residential estates (residential nil-rate-brand or RNRB) to £150,000, giving people some breathing space before tax is due on their property.
Quilter found that only 41% of the 1,270 adults surveyed were aware of the RNRB threshold, despite it being in effect since 2017.
Additionally, less than half knew about other inheritance rules, such as the gifting limit being at £3,000 (46%), or the overall IHT nil-rate-brand, which is set at £325,000.
Affecting people’s decisions
More than half of participants (60%) admitted that knowing about such rules would impact on their decision making and inheritance planning; although many were unsure about how they work.
But this shows that, while people believe regulations to be important, they still struggle to understand how they would affect them in practice.
For instance, assets that remain untouched could potentially be redirected to charity and lost if they remain unclaimed or if no instructions are given setting out for who they should be passed on, International Adviser reported last week.
“In the modern world, families are increasingly becoming more complex and we need a tax regime which functions with this in mind,” said Rachael Griffin, tax and financial planning expert at Quilter.
David Miller, investment director at Quilter Cheviot, also said: “As investment managers, we know the importance of working with financial planning experts to ensure our clients understand the complexities surrounding inheritance tax.
“Forward planning can make a huge difference to the following generations, and this is something that people should consider sooner rather than later.”
Simplifying the rules
Griffin added that “the RNRB is a prime example of an over-complicated tax policy which no longer reflects a modern family set-up, as it depends on a number of factors, including your marital status and who inherits the family home”.
“These kinds of rules should be re-thought so people have the freedom to gift to whoever they want and are not constrained by antiquated societal rules.
“A simpler method to achieve the same goal would be to simply raise the standard nil rate band amount to £1m per couple. A simple IHT regime gives people far greater opportunity to best plan their estates and make the most difference to later generations.”
