Inheritance tax is a tax on the estate of someone who has passed away and is payable on all amounts above a certain threshold. Currently, Inheritance Tax stands at 40 percent, and must usually be paid on amounts above £325,000. Britons may be pleased to note that many underestimate how much money they will receive in inheritance, and are often surprised with the amount to which they are entitled.
However, many could also lose out unnecessarily, by failing to discuss inheritance and related taxation in advance.
A study undertaken by wealth management company Charles Stanley has found parents planned to pass on an average of £124,000 to their children.
This is compared to the average most adults expected to inherit from their parents – £78,000.
The survey, which questioned 2,000 adults, therefore showed Britons could stand to inherit 60 percent more than they expected.
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The survey revealed 22 percent of those asked said their family has spoken about inheritance.
And 17 percent stated they did not know if they would inherit anything at all.
Despite a higher inheritance often being welcomed, many people could in fact find themselves worse off due to higher tax bills.
Alex Price, director of financial planning at Charles Stanley, commented on the findings.
He said: “It is important to speak to your loved ones about your intentions and your wishes early, and not doing so can come at a price.
“Having the ‘money talk’ with children is the ‘grown-up’ version of the birds and the bees talk.
“You might not want to have ‘the talk’ but not having it could mean you and your family lose out unnecessarily.”
Inheritance Tax is a levy many families will be forced to confront, even in a time of potential grief, so it is important to prepare in advance if possible.
Under government rules, the tax must be paid within six months of a person’s death, or families could risk incurring charges.
Funds from a person’s estate are used to pay the IHT bill to HMRC within this set time frame.
The action is usually taken by the person who is dealing with an estate, known as the executor.
People are usually exempt from IHT if the value of an estate is under £325,000, or everything above the threshold is left to a spouse, civil partner, charity or amateur sports club.