Cost of confusion sees families hit harder by Inheritance Tax
The new study from Norwich Union, soon to be Aviva, polled consumers close to or above the IHT threshold and found that over two thirds (62%) had ‘partial or no understanding' of what IHT actually is. In fact, only 16 per cent were able to correctly identify the threshold.
This lack of understanding is leading to ‘Inheritance Tax Inertia' - where Brits are so confused by the system and their options that they take no action at all. As a result, a large majority of families could end up paying larger tax bills than they need to when their relatives pass away.
To help rectify this Norwich Union is rolling-out a number of new inheritance tax (IHT) measures in the coming months to simplify estate planning.
The ‘Inheritance Tax Inertia' study by Norwich Union also revealed:
Almost a quarter of people (24%) think the threshold is higher than it actually is
A third think it is only relevant to high earners and the very rich
Many are leaving estate planning too late - 33 per cent of those over 80 (who are over or close to the threshold) have not made plans to because they are unaware and 40 per cent of 50-64 year olds, are waiting until they are ‘a little older'. The recommended time for estate planning is at the same time as you are planning your retirement e.g. 55 - 65
Over half (52%) would be more likely to take action on IHT planning if it was made easier for them - with 16 per cent of people unsure where to go for advice
29 per cent say they don't know where to start
Nicholas Burton, senior marketing manager for Norwich Union comments, "IHT is not just for the super rich - many of our customers are mystified by the current system and as a result are not taking action or leaving things too late. Even with current fluctuations in the housing market, people still need to be aware that property can easily push them over the threshold.
"Estate planning is traditionally one of the most complicated areas of financial planning, with many consumers being alienated by the jargon and technical information available to them. The aim of our new initiative is to help simplify the process for both IFAs and consumers. We hope that this will enable them to plan more effectively and reduce their tax bill."
The initiative includes a new set of guides and products to simplify trusts and estate planning, which include:
Simplified product guides for customers
An updated portfolio of Discretionary Trust products which can potentially help customers to save tax
Simplified adviser information and estate planning ‘bibles'
Norwich Union's new offering will help educate consumers about the options available to them and guide them through the process more easily. While the vast majority of people opt to make a will (97%), currently only 18 per cent of those questioned said they would consider an annual gift and just one in five (20%) plan to put money into trusts.
Many are unaware of the different types of gifting choices (including annual gifts, giving to charity, political parties and giving away expensive items)
40 per cent aren't aware that using trusts can help reduce their IHT tax bill, one of the most effective forms of estate planning
Seven in ten (71%) aren't aware that being married or part of a civil partnership can help reduce their IHT bill, with only 34 per cent planning to leave their assets to their spouse
7 per cent mistakenly believe they can leave everything to their grandchildren to avoid IHT
Over half (55%) incorrectly believe that overseas assets will not be taxed
60 per cent aren't aware their pension benefits are taxable while 51 per cent don't realise IHT also applies to life insurance