UK Treasury Benefits From Poor IHT Planning

by Robert Lee, Tax-News.com, London

29 April 2010

UK taxpayers will waste nearly GBP2bn this year due to poor inheritance tax (IHT) planning, according to new research.

The annual Tax Action report by unbiased.co.uk, the professional advice website, reveals that over one-third of consumers (35%) support the Conservative Party pledge to raise the IHT threshold to GBP1m – meaning far fewer people would have to pay it. However, while one in three Britons (31%) predict substantial tax hikes after next month's general election, 86% admit to doing nothing to reduce their tax burden.

Lack of IHT provision represents the second biggest tax wastage area in the UK, the research finds. This figure could be set to increase as Chancellor Alistair Darling announced in this year’s budget that the IHT threshold would be frozen for the next four years at GBP325,000, rather than rising in line with inflation.

IHT is due at a rate of 40% if the deceased's estate, including certain assets held in trust and gifts made within seven years of death, is valued over the IHT threshold.

The research shows one of the main causes of ‘death tax’ wastage is the inclusion in personal estates of the proceeds of life assurance policies, which if written in trust, would not be subject to inheritance tax.

Karen Barrett, Chief Executive of unbiased.co.uk, commented:

“With Tory plans to raise the inheritance tax threshold to GBP1m, IHT is now a key topic on the election agenda. Our annual Tax Action report shows that vast sums are being lost from estates every year because the deceased had not made adequate provision for inheritance tax. Such situations can only bring additional unwelcome stress for the deceased’s family at an already difficult time, as this tax must be paid before the estate is released and any inheritance can be passed on."

“As well as having your tax affairs organized, it is also crucial you have a valid will in place to ensure your legacy does not involve just leaving a large inheritance tax bill for your loved ones."

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