Research published by investment managers TIME reports that 78% of those over 55 do not know their exposure to inheritance tax. They may, writes Olivia Meeken, be leaving their children with a nasty inheritance tax bill.
A study of 1,000 adults over the age of 55 in September 2022 reported that 78% of them had no idea of their exposure to inheritance tax. And whilst that may not cause problems during their lifetime, it may leave their children with high inheritance tax demands at an already emotionally difficult time.
HMRC requires any inheritance tax on an estate to be paid within six months if interest is to be avoided. For example, if an individual were to die in January, any inheritance tax due must be paid by 31 July.
When the size of an estate is unknown and where assets may be difficult to locate, that can cause problems. Children may face hefty inheritance tax demands and additional fees from advisers as the size or extent of an estate is uncovered.
Inheritance tax is charged at 40% on the value of your estate over £325,000. And whilst inheritance tax isn’t charged if your estate is left to a spouse or civil partner, that estate will be subject to IHT on their death.
The inheritance tax threshold has, despite promises from previous Conservative governments, remained unchanged for 19 years. With house prices increasing, the number of individuals falling into the inheritance threshold has increased markedly.
For many, the family home is likely to be the single largest asset owned and its value will be easy to establish. Yet increasing, estates are more complex following multiple marriages, business interests or property and assets held overseas. They can take time to unpick with the full size of an estate unknown for many months after death.
Where an estate is complex and its value not completely known within the six-month window, it may be necessary to pay any inheritance tax on account – essentially an estimate of what is due – or accept that interest and penalties will be accrued. It should also be remembered that the executors of an estate cannot apply for probate until inheritance has been paid on the liquid assets in the estate, typically cash in bank accounts, shares and personal belongings.
There is, of course, a much simpler alternative. We would encourage parents to share with their children the size and extent of their estate, perhaps at the same time when creating or updating a Will.
When the full extent and value of an estate is known, steps can be taken to reduce any inheritance tax exposure or make sure funds are available to meet any inheritance tax liabilities, leaving both parents and their children with peace of mind.
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The above is correct as at 07 December 2022. The information above may be subject to change.
The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.