According to research from Scottish Widows, over five million households (21%) in Great Britain are now valued at more than the current Inheritance Tax (IHT) threshold of 285,000 pounds.

A further five million are liable for IHT when total household wealth is taken into account, making a total of four in 10 (41%) or 10 million households with an estate liable for a 40% tax bill on their death – up from a third (34%) last year.

The Scottish Widows IHT index, revealed the average household wealth liable for IHT now stands at about £261,000, just over eight percent under the current IHT threshold. The current IHT threshold was raised by just 3.6 percent in April this year, in comparison to house prices, which have risen by 6.3 percent.

However, the report reveals that there is still little knowledge of this tax. Six in 10 (62%), or 15.7 million homeowners say they have no idea what the IHT threshold is. Of those homeowners that think they know the threshold limit, only a third (36%) actually identify it accurately as £285,000. Of those actually liable for IHT, only a third (33%) can state the correct IHT threshold.

Two thirds (67%) of all homeowners say that they think that the current IHT threshold is unfair. Of this group, a third (31%) say they don’t think inheritance should be taxed at all, one in five (22%) say inheritance shouldn’t be taxed between blood relatives, and a quarter (26%) think that the threshold should be raised to over £500,000.

Anne Young, tax expert at Scottish Widows, comments: “Our research shows that the Government raising the threshold by just over three percent in the last Budget has not had any impact on the number of people liable for IHT, in fact the situation has worsened.

The six percent rise in property prices means that thousands more people will now face IHT this year compared to 2005. Whilst the average household wealth has increased from last year, so too has the amount of liabilities meaning the possibility of an added burden of debt left behind to relatives in the event of a death.

It is important people understand what inheritance tax is, and how families will be affected upon the death of a loved one. IHT is no longer a rich man’s tax, it is a tax that affects more people every day. Spending a few pounds today on inheritance tax planning could mean a future saving of thousands of pounds. I’m sure people would rather their relatives get their inheritance as opposed to the tax man.”

Lack of Action
Scottish Widows also said that four in 10 (42%) people with property worth over £285,000 have not taken any steps to reduce the amount payable in inheritance tax. One in four people (23%) say this is because they are too young to worry, with a similar amount (24%) saying that it hasn’t occurred to them to even think about reducing their liability. Over one in 10 (12%) think that it doesn’t affect them, because there is only a spouse or partner that would be affected. Six per cent said they haven’t made any plans because they don’t want to think about dying.

Having dependents benefit more is the main reason for people to take steps to mitigate their tax liability, with six in 10 citing this reason for doing so. Having to pay tax on their own parents’ estate was enough of a pull factor for one out of 10 people.

Scottish Widows said the most popular actions people have taken to mitigate against inheritance tax are:
- Making a will (62%)
- Setting up a trust (32%)
- Visiting a financial adviser (28%)
- Changing joint ownership of the home to tenants in common (28%)
- Giving away money (23%)

Anne Young concluded: “IHT needn’t be scary - simply writing a will can make all the
difference and there are plenty of professionals around to help you with this, and other decisions. It isn’t pleasant to talk about your own death, but it will be more unpleasant for your relatives to face an unwanted 40% tax bill.”