Affluent Britons could face unexpected tax bills on their estate because they have no awareness of the inheritance tax threshold. A new report reveals that less than half of those liable for inheritance tax, know the correct threshold.

Affluent Britons could face unexpected tax bills on their estate because they have no awareness of the inheritance tax threshold. In a new report on wealth entitled “Heir today, gone tomorrow,” Close Brothers Asset Management revealed that less than half (47 per cent) of those liable for inheritance tax on their personal assets, know the correct threshold.

Moreover 14 per cent wrongly assume the threshold is £500,000 ($836,200) or higher, meaning that many people are at risk of leaving their loved ones with unexpected tax bills.

The amount paid in inheritance tax is predicted to climb by 60 per cent by 2019, as the current threshold is locked at £325,000 and assets such as property are rising in value. Consequently, the number of Britons set to fall into the threshold is forecast to double from 21,000 in 2012 to 42,000 by 2016/17. Yet despite the importance of inheritance tax planning, many of those with estates above the threshold have not sought tax advice.

“With £75 billion being inherited in the UK every two years, large sums of family wealth are left unnecessarily exposed to tax. A combination of planning inertia and a general lack of awareness is to blame, but it is crucial that those who will see their estates subject to the tax understand their liability,” said Patrick Haines, regional head of advice at Close Brothers Asset Management.

For instance, a majority of respondents were aware of the seven-year gift rule, yet 18 per cent still said they were completely unaware of this legitimate exemption. There was significantly less awareness of the Business Property Relief, with two thirds (66 per cent) unaware of this tax-saving measure.

A need for tax education

This lack of awareness was particularly reflected by the number of affluent people who have not yet put adequate plans in place to minimise inheritance tax liability. More than a third (34 per cent) of those with assets over the threshold said they have not put any plans in place to protect their wealth. Even more surprising, 32 per cent do not believe they need to do anything to protect their assets.

Furthermore, the research revealed that despite their exposure to inheritance tax, 43 per cent of the affluent respondents have never sought professional advice from a lawyer, accountant or financial planner and 11 per cent have not discussed passing on their wealth with anyone at all. As such, Haines suggests that education measures need to be put in place in order to prepare high net worth individuals for inheritance tax issues.

“To ensure the smooth transfer of wealth to future generations, further education on tax saving measures and a much greater focus on early financial planning is essential. But this needn’t be a challenging process. There are professionals who can offer expert guidance on inheritance tax and can help people understand their exposure to higher taxation and the actions that could be taken to mitigate it,” Haines explained.

Regional divides

The report also found that awareness of inheritance tax varies across the UK. The affluent in the North West were the most likely to consider the process involved in passing on assets (87 per cent), while those in the North East had the best awareness of the current threshold (57 per cent).

However, surprising results revealed that high net worth London-based respondents were the wealthiest in the UK, with an average of £1.33 million in assets, £441,500 more than the national average, yet just 38 per cent of those living in the capital could confirm its threshold, the second lowest in the UK (after Wales).

The research was conducted between 20th and 27th of November 2013, and surveyed 1,000 adults in the UK with personal assets of over £325,000.