Almost three in five (59%) UK adults admit that they find inheritance tax (IHT) rules confusing, Canada Life has revealed.

The financial services firm said its latest research raises concerns that families could miss chances to pass on wealth efficiently or face unnecessary tax bills.

With frozen thresholds and recent policy changes set to pull more families in the IHT net, only 6% of respondents described their understanding of the rules as very clear.

Canada Life, which surveyed 2,000 UK adults, stated that despite the start of the tax year being an opportunity to take stock of gifting allowances and exemptions, just 15% of Brits feel confident about how much they can gift each year without it being counted for IHT purposes.

The majority of people (74%) have either heard of certain gifting allowances and exemptions but do not know the details, while 10% incorrectly think that all gifts sit outside of IHT calculations.

Canada Life also found that 26% of UK adults could correctly identify the annual tax-free gift allowance as £3,000, with the remaining proportion either chose the wrong amount or said they did not know.

This allowance, known as the annual exemption, can be given to one person or split between several people, with any unused annual exemption from the previous tax year can also be carried forward.

Furthermore, 57% are either not aware of the seven-year rule or do not know how it works, with the rule applying to all gifts not covered by an exemption and allows gifts such as cash or property to fall outside the estate for IHT purposes if the donor survives for seven years.

If they die before this time, the gift may be taxes, with the full 40% rate potentially applying if death occurs within three years. Only 27% of those surveyed said they fully understand this rule.

Tax, trusts and estate planning expert at Canada Life, John Chew, stated: "With rising property values, IHT thresholds frozen until 2031 and pensions set to be included in IHT calculations from April 2027, an increasing number of families who never expected to pay IHT may now need to review their financial planning strategies. Confusion around IHT can have real consequences: families risk missing valuable reliefs and exemptions or face delays and additional stress at an already difficult time.

"As we embark on a new tax year, now is a good time to take stock of your estate and assess your IHT position. The earlier families start to plan, the more scope they have to use allowances and exemptions, make gifts in a tax efficient way, and structure their affairs so that more of their wealth goes to loved ones.

"Given the complexity of the rules and the growing number of estates likely to be affected, professional financial advice is essential to help ensure that wealth is passed effectively to the next generation and to reduce the risk of unexpected tax bills."

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