Only one in four respondents to an HMRC survey completely understood how the inheritance tax (IHT) system could work for them. How would you fare?
A survey by HMRC of 947 people who had made gifts in the last two years was published in May and concluded that the public have a relatively poor knowledge of inheritance tax rules and lack of confidence in what they do know.
To assess knowledge of the IHT system among these donors, they were asked eight questions, which are shown below.
(Answer true or false):
- A donation to a charity or a qualifying political party can count as a gift that is exempt from inheritance tax
- Inheritance tax may be paid on gifts totalling more than £325,000 if the person who makes the gifts dies within seven years of making them.
- A person can give as many gifts of £250 as they want in a year and not be subject to inheritance tax, as long as each gift is to a different person
- Inheritance tax may be charged at 40% on gifts to individuals given by the deceased in the three years before their death
- A gift can be the difference between the value of property and the actual price that the buyer pays
- Inheritance tax will always be payable on gifts over £3,000 given in the seven years before death
- A gift up to £1,500 to a niece or nephew getting married is always tax free
- A married couple or civil partners can leave up to £950,000 to their children without paying inheritance tax
58% answered five or more questions correctly, while just 37% gave themselves a confidence rating of over 6 out of 10 on answering the questions. After adjusting for confidence levels, the survey concluded that the proportion with a “high knowledge” – as opposed to simply lucky with their answers – was just one in four.
Whatever your score, it is worth considering why HMRC should have undertaken such a survey at this time. It may be no coincidence that the Office of Tax Simplification is due to publish its second report on IHT simplification soon. Rationalising the rules on lifetime gifts is an obvious target, but as ever with simplification, there would be some losers. We can help you consider where you might stand on the winning and losing scale.
For specialist, professional advice on how to plan and mitigate Inheritance Tax and how to put in place a financial succession strategy, get in touch.
The correct answers are:- True: 1, 2, 3, 4, 5, 8 ; False: 6,7
Please Note: The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.