A new report published by the National Centre for Social Research (NatCen) and the Institute for Fiscal Studies (IFS) has revealed a worrying lack of awareness about the Inheritance Tax (IHT) benefits of making a gift.
Its study found that only 25 per cent of those who had made a gift had a ‘working knowledge’ of the IHT rules and fewer than half reported being aware of IHT rules or exemptions when they had given their largest gift.
Considering the lack of awareness around the rules it is not surprising that only eight per cent of all respondents actively considered the tax rules before making a financial gift.
Of those who did have awareness of the rules, around 54 per cent said that it influenced how much they gave. Extrapolating the data further reveals that the majority of those with an awareness of the rules came from wealthier households with assets of more than £500,000.
Below this level of wealth, there was significantly less knowledge of either the seven-year rule or the annual £3,000 limit on gifts.
A remarkably low number of estates are affected by IHT (around 4.2 per cent of all deaths annually). Nonetheless, IHT receipts still totalled £5.2 billion in 2017-18, an increase of eight per cent on the previous year’s figure.
The report also shows that around 12 per cent of people have made gifts, with those aged 60 or over giving a median total of around £4,000, while those under the age of 60 give on average £3,500.
Incredibly, 12 per cent of those aged 70 or over who were surveyed had given away £20,000 or more in the last two years. Over 80 per cent of gifts were made to individuals, but one in 10 respondents had also made donations to charity.
For help and advice regarding tax reliefs and, in particular, how to properly utilise gifting to reduce the burden of inheritance tax, please contact us.