There is a gap between people’s understanding and the reality of what they are leaving to the next generation to inherit, Barclays Wealth has warned.
Its research in March of over 2,000 adults found three in five (60 per cent) aged between 45 and 54 said they did not know if their investments would be subject to inheritance tax when passed on to family.
Additionally, the survey found a quarter (26 per cent) of respondents did not know if the value of their property would be considered separately to the rest of their financial assets when it comes to inheritance tax.
Lee Platt, wealth planner at Barclays, said: “There’s clearly still some confusion around exactly how inheritance tax works, and a gap between people’s understanding of what they’re leaving to the next generation, and the reality.”
The research from Barclays Wealth also found three in 10 (29 per cent) mistakenly believed that Isas are exempt from inheritance tax.
Camilla Bishop, a solicitor who specialises in inheritance tax, said: “Isas are tax free for income tax and capital gains tax but are very much still exposed to inheritance tax.
“It is not enough to make the most of Isa allowances – you need to go the extra step and either gift or transfer into trust.”
Bishop added: “Broadly speaking, all assets are exposed to IHT unless there is an exemption or relief that applies. The importance of clear advice from professionals is evident.”
Lorna Fairbairn, partner and head of private client at DMH Stallard, said: “The results of the survey aren’t surprising and confirm the view that there is widespread misunderstanding about what is subject to IHT.
“This is one of those areas where it is so important that individuals don’t leave their planning to the eleventh hour.”
Fairbairn added: “Early planning means people can take advantage of, for example, the tax benefits of ensuring life policies are placed in trust and that pension funds can be passed to their family without being subject to IHT.
“It’s also clear from the survey that much more should be done to inform and educate people about longer term financial planning.”
Likewise, Barclays’ Platt said: “We’d always encourage people to have these conversations with their family ahead of time – and read up on the different allowances and rules around taxation, to make sure you fully understand the implications for your estate – giving yourself enough time to plan and make the most of any allowances.”
Inheritance tax has long been described as an area that is “outdated” and in need of an overhaul.
Speaking on the FTAdviser podcast, Edward Grant, director responsible for professional development at St James's Place, pointed out that many allowances and exemptions in relation to IHT were introduced in the 1980s.
chloe.cheung@ft.com
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