Inheritance tax ignorance leaving Londoners with unexpected bills

Families 'underestimating bills'

Families 'underestimating bills' - Credit: PA Wire/Press Association Images

More than half of London residents exposed to inheritance tax risk leaving their loved ones with unexpected tax bills because they are not aware of its laws.

According to a new report conducted by Close Brothers Assett Management, as many as 62% of Londoners liable for inheritance tax do not know the correct tax threshold, with a further 32% overestimating it.

With the threshold currently frozen at £325,000 and with assets such as property rising in value, the number of Britons set to fall into the threshold is forecast to double from 21,000 in 2012 to 42,000 by 2016.

The total amount paid in inheritance is subsequently expected to rise by 60% by 2019.

Tax saving measures can help affluent Londoners ease the financial burden, though 18% were unaware of the seven year rule, which allows gifts made to individuals to remain exempt from inheritance tax as long as the person lives for seven years after making the gift.

There was significantly less awareness of the Business Property Relief, with nearly half (46%) unaware of this tax-saving measure

Patrick Haines, Regional Head of Advice at Close Brothers Asset Management, said: “When it comes to personal finances, those looking to pass on their wealth cannot let inheritance fall under the radar. It can only be ignored for so long.

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“With £75bn5 being inherited in the UK every two years, large sums of family wealth are left unnecessarily exposed to tax.

“A combination of planning inertia and a general lack of awareness is to blame, but it is crucial that those who will see their estates subject to the tax understand their liability.”