Six in 10 retirees unaware of IHT threshold

Six in 10 (59%) retirees said they do not know what the inheritance tax (IHT) threshold for the value of an estate is, Just Group has found.

As part of the group’s countdown to retirement research, Just Group revealed a gap among retired and semi-retired over-55s’ understanding of IHT despite increasing numbers becoming eligible for the threshold.

Over half (51%) of those surveyed said they did not know what the threshold is for the value of an estate to pay IHT with a further 8% of respondents stating they were not sure.

The starting threshold for IHT, the nil rate band, is £325,000 and has been unchanged since 2009, which would be equal to nearly £500,000 today if it had been adjusted by inflation.

The residence nil rate band, introduced in 2017, is currently £175,000 and has not been increased since 2020-21. Both bands are set to remain frozen until April 2028.

In the meantime, the average UK property price has risen by nearly a third (30%) in the past five years, growing from £218,642 in April 2017 to £283,871 in April 2023.

Awareness of the IHT thresholds were slightly stronger among the top third highest-income pensioners responding to the survey, but even among this group, 42% still said they did not know what the thresholds are.

Half (50%) of retirees also said they did not have a clear understanding of the IHT rules and the amount that can be passed on before tax. Just Group said this is an important point for people to understand, after HM Revenue and Customs has recently risen its forecast for the number of extra estates it expects to incur IHT.

An additional 13,400 estates would pay IHT in the seven years to 2028, the Government estimated in November’s autumn statement, as a result of the frozen starting thresholds.

This was revised up by 36,000 to 49,400, a near four-fold increase, in the spring budget.

Group communications director at Just Group, Stephen Lowe, said: “The pincer movement of rising property prices and frozen tax thresholds means that more and more families are getting caught in the IHT trap.

“Anyone planning to pass on an inheritance to their loved ones should make sure they understand if the IHT rules will affect their plans and how to mitigate the impact if they do.

“Homeowners should ensure they have an up to date valuation of their property to check whether recent substantial property price rises have tipped them over the threshold.

“Professional, regulated advice can also help people work out the total value of their estate, calculate how much IHT those inheriting the estate may be likely to owe and understand what options they have to minimise a future tax bill.”

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