Inheritance tax is expected to hit London’s households hardest across the UK with an average IHT bill of £223,176 ($293,511, €259,606), according to HM Revenue and Customs (HMRC) figures provided by Sanlam UK.
The North/South wealth divide in the UK remains prominent, with south-east England (second) and south-west England (fourth) among the top four potential IHT hot spots, with average bills standing at £183,859 and £169,663, respectively.
Scotland came third with an average bill of £174,590.
With nearly 25,000 UK households affected by IHT last year, it’s becoming increasingly important for people to put a clear plan in place.
Source: Sanlam UK
Neil Jones, wealth management and tax specialist at Canada Life, told International Adviser: “While inheritance tax only applies to around 5% of estates; this research highlights, where it is payable, it can significantly reduce the money passing onto future generations.
“The position in London and the south-east is more noticeable and is probably caused by higher property values, despite the introduction of the residential nil rate band.
“Generally, the earlier someone starts estate planning the better. While people maybe unsure about lifetime gifting for fear of needing the money in the future, using a suitable trust can mean they retain access in case of a change in circumstances, maybe to supplement retirement or for care costs.
“The inheritance tax issues do not just lie with those owning the assets now, but these will pass to future generations – a trust can help with their estate planning as they can be used to skip generations.”
Power of trusts
Rachael Griffin, the financial planning and tax expert at Quilter, told IA: “The average IHT bills across the country correlate well with where the highest house prices are too.
“Someone’s house is often their biggest asset, however, the rules surrounding how you pass this asset on can be incredibly complicated and provide a golden opportunity for advisers to show their worth.
“Trusts can also represent a good financial planning point for anyone looking to mitigate IHT.
“As people live longer and care costs increase gifting might seem unappealing, as it can be difficult for people to predict and manage their finances and some types of trust can help mitigate IHT while still maintaining a degree of flexibility.”
