In the UK, the nil rate band for inheritance tax is the limit up to which an individual will pay no IHT, which is currently set at £325,000 ($418,291, €380,152).
But things become complicated when gifting is involved.
One in five (21%) independent financial advisers do not know when a client can take advantage of the nil rate band (NRB) to gift money outside their estate without incurring a tax penalty, Canada Life found.
That number increases to 25% for those with 100 or fewer clients.
A worrying 53% of advisers also believe that the transferrable NRB can be used by the surviving spouse for gifting purposes.
According to Canada Life, only 17% are aware that the transferrable nil rate band can be taken advantage of only on the death of the spouse, and not for lifetime gifting.
Lack of awareness at both ends
And it’s not just advisers who are being caught out.
While two-thirds (65%) of IFAs think their clients are aware that they can give away surplus income without attracting IHT on those gifts, 27% disagree.
The proportion of advisers who don’t believe their clients are aware becomes 34% if they are based in London or in the south of England (where incomes tend to be highest), and 31% for those with more than 100 clients.
Political uncertainty and IHT
Neil Jones, tax and wealth specialist at Canada Life, said: “Some areas of inheritance tax can be complex and nuanced, even for the most experienced financial advisers.
“It is therefore no surprise that a significant proportion of advisers are not up to speed with the intricate rules surrounding gifting and the transferable nil rate band, especially if they do not deal with estate planning regularly.
“The government has signalled its intention to review the complexity of inheritance tax and the Office of Tax Simplification has already carried out its review.
“At the same time, there is large degree of political uncertainty at the moment, some of which will naturally reflect on IHT rules.
“Advisers who are unsure of the nuances of inheritance tax would be wise to seek out technical support from providers in the market to ensure they are providing the best possible advice to clients.”
Canada Life’s research surveyed 201 IFAs in September 2019.
