Half of UK’s Millionaires Have Done No IHT Planning At All
Inheritance Tax (IHT) is not a popular topic of conversation, but it’s an essential one. IHT is a tax that applies to people’s assets when they die, and if you’re not careful, it can significantly reduce (40% after allowances) the value of the assets you leave behind for your loved ones. Unfortunately, just under half of High Net Worth (HNW) Brits have not taken advice on IHT planning, according to a recent study by Investec Wealth & Investment.
It is a concerning statistic, which highlights the need to raise awareness of the importance of seeking advice on IHT planning. Not planning for this death tax can be very costly: Inheritance tax (IHT) receipts hit an all-time high of £7.1 billion in the 2022/23 tax year and are predicted to continue rising. Government figures show that £2 billion was paid in the first three months of this tax year, with June 2023 seeing the highest amount of IHT paid in a month. The government estimates it will raise £45 billion in IHT between 2022 and 2028.
Almost 50% of people with estates worth £1 – £1.25 million have done no IHT planning, and 1 in 5 have no Will. Here’s why they may wish to do so.
IHT planning is an essential aspect of financial management that should never be overlooked. Let’s first consider the reasons why you should strategically plan IHT planning.
Inheritance Tax (IHT) is a tax that the government imposes on the value of your assets when you die. The current IHT threshold, known as the Nil Rate Band (NRB), before tax is paid is £325,000 for an individual, and £650,000 for married couples or those in Civil Partnerships. What we know is that those thresholds will remain frozen until at least the 2025/26 tax year – and have no regard for inflation and rapidly rising property prices.
If your net estate is valued above your respective NRB at death, then anything above this level is taxed at a rate of 40%. If your estate exceeds this threshold, your family and loved ones could be subjected to a hefty tax bill, which could have been avoided with some simple planning.
What does the tax freeze mean?
If the basic IHT threshold had kept up with inflation, it would be over £478,000 instead of the current £325,000. That’s a staggering difference of £153,000! Unfortunately, this means that grieving families end up paying an additional £61,231 (40% of £153,000) to HMRC due to the freeze.
No Will, Big Problem
What’s more, according to the research, 21% of millionaires do not have a Will in place to guide the division of their estate. Among those planning to transfer wealth, 54% have not discussed it with the intended recipient, and 14% do not intend to.
In response to these startling statistics, Mark Kirkham of Soteria Trusts, emphasises the importance of Will and Estate Planning:
The consequences of not implementing a robust IHT plan can be severe. Some people might choose to ignore it because they assume that their estates don’t exceed the IHT threshold and, therefore, do not need to make any provisions. Another issue is that people don’t anticipate how large their estate might grow over the next 5, 10 or 20 years. You can use Soteria Trusts’s IHT Calculator and see for yourself if your estate will fall under the IHT net:
Failing to plan properly can result in your loved ones being forced to sell your assets to repay the tax bill. This can cause unnecessary stress and anxiety when your family is already dealing with grief.
Moreover, if your estate passes to the wrong person, i.e. if you die intestate and have no living relatives, your assets could pass straight to the government, instead to a dear friend who cared for you all their life, or a charity of your choice. That is why seeking IHT planning advice is essential to avoid these costly mistakes.
How can Soteria Trusts help?
Seeking professional advice on IHT planning has numerous benefits. A qualified professional can help you plan effectively, ensuring you are aware of all the options available. They can provide valuable insight and ways to minimise the tax charged on your estate by using trusts, permissible gift limits, retirement planning, and more.
They can also ensure that your estate passes to the right people, ensuring your wishes are respected. Moreover, they can give you peace of mind, knowing that your assets are managed correctly and will benefit your loved ones best.
Soteria Trusts offers Wills and Lasting Powers of Attorneys as the foundations of every estate plan. After getting to know you and your situation, our advisory team will advise on how to structure your assets best and shelter your wealth from tax and creditors. The Estate planning process has become a core component for becoming and remaining tax efficient, allowing you to enjoy your later years and make certain that what you worked so hard to achieve will be passed quickly and tax efficiently to your intended beneficiaries, following their ultimate demise, onto future generations of family members and loved ones.